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spk09: Good afternoon and welcome to the first quarter 2024 earnings release conference call for Arcadium Lithium. Full lines will be placed on listen only mode throughout the conference. After the speaker's presentation, there will be a question and answer period. I will now turn the conference over to Mr. Daniel Rosen investor relations and strategy for Arcadium Lithium. Mr. Rosen, you may begin. Great,
spk05: thank you, Mark. And thanks to everyone for joining Arcadium Lithium's first quarter 2024 earnings call. Joining me today are Paul Graves, president and chief executive officer, and Gilberto Antoniazzi, chief financial officer. The slide presentation that accompanies our results, along with our earnings release, can be found in the investor relation section of our website. Prepared remarks in today's discussion will be made available after the call. Following our prepared remarks, Paul and Gilberto will be available to address your questions. Given the number of participants on the call today, we would request a limit of one question and one follow-up per caller. We'll be happy to address any additional questions after the call. Before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our form 10-K and other filings with the Securities and Exchange Commission. Information presented represents our best judgment based upon today's information. Actual results may vary based upon these risks and uncertainties. Today's discussion will include references to various non-GAAP financial metrics, definitions of these terms, as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided on our investor relations website. And with that, I'll turn the call over to Paul.
spk10: Thank you, Dan. Hello, everyone. This marks the first completed quarter for Arcadium Lithium as a combined company following the closing of the Livenall Chem merger in early January of this year. Since closing, we've taken a number of important initial steps to create a truly new company. These changes will allow us to deliver on the significant benefits of the merger that we previously discussed. As a result of multiple integration steps taken, including headcount reductions, procurement renegotiations, and organization realignments, we are on track to achieve our targeted 60 to $80 million of realized synergies and cost savings in 2024. We began as a new company with solid first quarter results delivering $109 million in adjusted EBITDA. As we will discuss, our multi-year customer relationships and the wide range of high quality lithium products we produce allow us to reduce the overall volatility of our earnings while maximizing the value per unit of lithium sold. You can see the benefits of these factors in the pricing we achieved in our lithium specialty products businesses and in our combined hydroxide and carbonate average realized pricing in the quarter. We will discuss this more shortly. The company is bringing online significant additional production capacity this year in line with our previously announced plans and is expecting a 40% increase in combined lithium hydroxide and carbonate sales volumes for the full year. Beyond the production coming online this year, we will provide additional details on the next phase of our expansion projects that will result in an increase of our total capacity to 170,000 tons on an LCE basis in 2026. This is over four times our production levels at the end of 2023. I'll now turn the call over to Gilberto to discuss our first quarter performance.
spk13: Thank you, Paul. Starting on slide four, Arcadia reported first quarter revenue of $261 million, adjusted EBITDA of $109 million and adjusted earnings of six cents for diluted share. Volumes in the first quarter were down versus the prior quarter. They were in primarily by a decline in spodumene sales due to lower production at Mount Catlin in Australia. Prices were slightly higher across most lithium products versus the prior quarter due to an initial improvement in market conditions, although we're down compared to the beginning of 2023. Despite the weaker price environment compared to most of last year, the company achieved an adjusted EBITDA margin of 42%, demonstrating our leading low-cost position in Argentina and the earnings power of our business at various stages of the market cycle. Turning to slide five, we provide further detail on first quarter performance from our key lithium product groups. Lithium hydroxide and lithium carbonate together make up the core of our business, comprising roughly three quarters of our total revenue. On a combined product ton basis, we sold roughly 9,300 metric tons at an average realized price of $20,500 per metric ton. We believe this is higher than we would have been achieved had we pursued a fully spot market-based sales strategy. We benefit from both floors and fixed price in place on a portion of our lithium hydroxide volumes, as well as a lagging price index effect on some legacy carbonate contracts. As a reminder, we have multi-year agreements all with pricing floors with a select group of four customers on roughly two-thirds of our total hydroxide volumes. In addition to pricing floors, there are also firm annual volume commitments over the life of the agreements. Other factors impacting our overall realized pricing, both positively and negatively, are the portion of technical grade carbonate volumes that you sell, which are typically contracted lower price versus battery grade material, and the lag of as much as a quarter on a subset of our carbonate and hydroxide volumes, which are priced against market reference indices. We're pleased with the performance of our production assets in the quarter, with the low cost at our carbonate operations at both Phoenix and Oloros in Argentina, helping to drive strong margin performance. The operating costs of the two remain fairly consistent with prior levels, with no inputs driving material change to begin the year. Butyl lithium represents a substantial majority of the revenue in our other lithium specialty business, which have a wide range in product applications. Most of these products, including butyl lithium and high purie metal, are vertically integrated within our operations and are based on lithium metal, which is made from very high purie lithium chloride produced at Phoenix. While representing a smaller portion of overall volumes, you can see that these business combine to deliver high value for their underlying lithium content. Quarterly volumes in this business tend to stay fairly consistent. And while pricing did come down on a year over year basis, it did not do so by the same magnitude as some of our other products. This too helps to reduce the overall volatility in our portfolio over time. Finally, for Espodium E, we sold roughly 30,000 dryometric tons in the quarter, all out of our Mount Catlin operation in Western Australia, at an average grade of 5.4%. This was lower than quarterly volumes throughout 2023, and is due to the reduced mining and production plan for the year that we discussed on our fourth quarter earnings call. We achieved average realized pricing of $920 for dry metric tons on a SC6 equivalent basis, which is up versus Q4, but is still down meaningfully versus the rest of 2023. The cash operating cost of production among Catlin in the quarter was just under $700 per metric ton. I will now turn the call back to Paul.
spk10: Thank you, Gilberto. I'd like to provide some observations on what we see in the broader market for lithium as set out on slide six. The year began with a notably bearish tone around lithium and energy storage demand from pretty much everyone. And this was driven in part by negative headlines from various OEMs, especially those focused on the US market, as well as the typical seasonal slowdown scene leading into the Lunar New Year holiday. Now that we're through the first quarter, we can say that market demand for lithium was actually quite strong and certainly not reflective of some of the doomsday scenarios closer than the first few months of the year. Global EV sales were up over 20% year today through the first quarter. And to keep this in perspective and to make sure we're talking in numbers that reflect actual market size and not just growth percentages, global EVs sold in the first quarter of 2024 were equivalent to the total amount of EVs sold in all of 2020, according to data from the IEA. The story in China where so much of global lithium and energy storage demand continues to reside was even stronger. First quarter sales of EVs in China were around 2 million units. That's up 32% from the prior year. And March marked the second consecutive month with penetration rates above 30%. Expectations for EV sales are even higher in the second quarter, spurred by new economic incentives announced by the Chinese government in April and evidenced at the recent Beijing Auto Show, which featured 287 new energy vehicles representing over 80% of all the vehicles on display. Some industry analysts have opted to lower near-term demand forecasts, accounting for higher recent plug-in hybrid EV versus battery EV sales mix and some other data points. However, if you're gonna reduce lithium demand due to lower BEV sales in this scenario, you also need to account for the higher demand from more PHEV sales, where average battery sizes are in fact increasing. From analyzing multiple demand forecasts, we can see that BEV sales globally in 24 and 25 are indeed down compared to forecasts from a year ago, on average, approximately 20% lower for these two years. But, and this is an important point, demand from PHEVs and non-automotive demand, such as stationary storage, largely offsets this. On a total gigawatt hour basis, our analysis suggests that total demand is around 5% lower than previous forecasts in both 2024 and 2025. But by 2026, demand is no different or even slightly higher than it was a year ago. Putting this into more tangible terms, all the industry forecasts we've been able to look at continue to suggest that 2030 lithium demand will be around three times that of 2023, which is almost exactly what we were forecasting a year ago. Turning back to the current market, in the last few weeks, we've seen encouraging signs of a lithium price recovery with prices increasing from what appears to be the bottom of the current cycle. With the market having found price support well above the floor of any historical lithium cycle, it seems there's been a fundamental shift in our industry with respect to prices that incentivize sustainable long-term reinvestment. Perhaps the most challenging part of analyzing the lithium market is getting a clear understanding of what is happening on the supply side. The lithium supply growth that is surprised to the upside in recent years has been almost entirely high-cost material from spodumene out of Africa plus lupidolite in China, which would suggest a high degree of confidence in sustainably higher future prices. The development of these assets was likely encouraged by the high lithium prices seen in the last market run-up and supported by the China battery supply chain. But the challenge of analyzing the supply side of our industry is especially seen in independent research which continues, in our opinion, to lag the reality of the market and its forecasting. Most analysts that publish lithium supply models seem to struggle to keep their models up to date. As an example, when we look at the output forecasts from some of the leading market analysts and we compare their volumes with the number of producers that have actually put specific volume targets out themselves for 24 and 25, we repeatedly see that they overstate the numbers compared to these public forecasts. And this is before we even get into the debate of LCEs versus battery-qualified material. So moving on to slide seven, we're providing a few Arcadium-specific updates for 2024. The company continues bringing online its recently completed expansions. For lithium carbonate in Argentina, the first 10,000 metric ton expansion at Phoenix is fully commissioned and is now producing lithium carbonate at close to nameplate rates. The 25,000 metric ton expansion at Oloros has successfully produced its first carbonate and is on track to increase volumes closer to nameplate capacity as the year progresses, which is what we would expect with a conventional pond-based process. Turning to lithium hydroxide, the new 5,000 metric ton unit in Besima City and the 15,000 metric ton unit at a new site in Zhejiang, China are undergoing qualification with key customers. They are both expected to be producing commercial volumes in 2024 and will produce at full capacity as lithium carbonate production reaches the levels needed to feed them. Putting this all together, the company remains on track to achieve a 40% increase in combined lithium hydroxide and lithium carbonate sales volumes for the full year, with growth awaited towards the second half of 2024. Arcadium lithium also remains on track to realize planned synergies and cost savings, totaling $60 to $80 million in 2024. The company has already taken meaningful, immediate steps to lower costs, including reducing its global workforce by approximately 11% across all regions and functions in the first quarter and cutting back on third-party spending. Most of these savings are expected to be realized in the remaining three quarters of the year as some of these early actions begin to take effect. We will continue to keep you informed on our progress in these efforts, including short and longer-term initiatives. The company's made no changes to the full year 2024 outlook scenarios or other select financial items that were provided last quarter, as shown on slide eight. As a reminder, we provide this framework to understand how changes in market prices may impact the financial performance of arcadium lithium in 2024. These scenarios, which should not be construed as guidance, were selected to allow investors to assess our potential earnings at a range of market prices while overlaying our existing commercial agreements with their specific pricing mechanisms. On slide nine, I want to turn our focus to the growth our company is capable of achieving beyond 2024 and where the focus of our investment will be over the next three years. We slowed the pace of our planned capital spending compared to initial expectations in light of a lower price environment, as well as to provide the opportunity to maximize potential synergies and de-risk execution. However, we continue to believe we have a world-class portfolio of operating and development assets and that we are in a much better position to grow as a combined company. We plan to provide a comprehensive update on our growth plans at an investor day in September of this year, so please stay tuned for further information on this. By the end of 2026, we expect to increase our total production capacity to nearly 170,000 LCEs via multiple ongoing expansions. In Argentina, we're progressing an additional 10,000 metric tons of lithium carbonate capacity at Phoenix called phase 1B, and 15,000 metric tons of carbonate capacity at Salda Vida, two projects that are located very close to each other. Both of these are expected to reach mechanical completion by the end of 2025 and generate commercial sales in 2026. In Canada, we continue to construct 32,000 metric tons of fully integrated spodumene to lithium hydroxide production, namaskar lithium, and we're looking to commence work to build up to 40,000 metric ton LCEs of spodumene concentrate from Galaxy, formerly known as the James Bay asset. Both of these projects should be mechanically complete in 2026. The four main projects we're deploying growth capex towards over the next three years should already be familiar to our investors. We are still in the process of fully standardizing methodologies between the various projects, allowing us to speak consistently about the capital and operating cost assumptions across our development portfolio. But at this point, we estimate it will require roughly $1.6 billion in capex from 2024 to 2026 to deliver these projects to mechanical completion. We previously provided growth capital guidance of 450 to 625 million for 2024, and we expect to spend roughly similar levels in the following two years. With respect to 2024 capex, we expect quarterly spending the rest of this year to be below first quarter levels as the slowdown decisions previously announced start to take effect. Our confidence in pursuing these attractive expansion projects is supported by confidence in our ability to fund them. We believe we are in a strong position to fund the capital requirements through multiple different sources of financing. And we have the ability to adapt these plans as the market dictates. The main source of funding for these expansions will come from free cashflow generation, which itself will be strengthened by higher sales volumes. We're about to realize the benefit of a combined 35,000 metric tons of lithium carbonate coming online this year, but the capex for this growth already complete. We also realize additional cashflow as the next series of expansions come online in phases in the coming years. Beyond this, the company has over $400 million in cash on our balance sheet, a $500 million undrawn revolving credit facility, which can be expanded up to $700 million, and the opportunity to pursue other financing options, such as government loans and grants, customer prepayments, asset level financings, and or strategic partnerships. There is no doubt that post merger, we are a stronger and more resilient company, and we remain confident investing in these highly attractive assets throughout market cycles, which will lead to significant future growth. I'll now turn the call back to Dan for questions.
spk05: Thank you, Paul. Mark, you may now begin the Q&A session.
spk09: If you would like to ask a question at this time, please press star then the number one on your telephone keypad. Please limit your slot to one question and one follow up. If you have additional questions, you can jump back into the queue. To withdraw your question, press the pound key. We'll pause for a
spk14: moment to compile the Q&A roster. Your first question comes from the line of David Digglebone from DD Kilwin. Please go ahead. Thanks for the time, the
spk03: staff and everyone involved, and Joe Baratel. Thanks for taking my questions. My first one is really, I love the rename and rebranding around Galaxy. I'm curious as you look for nameplate to come online at some point in 26, is the intention right now to be a sort of spec spodum and teller into the market, or what are your plans to vertically integrate that asset -a-vis Beckencourt or working with a third party?
spk10: Yeah, good question. We, as you know, our business model is to be in the lithium carbonate and hydroxide and other specialty lithium salts business, not so much to be in the spodumene business, but for a whole bunch of reasons. The expectation and the plan is absolutely to integrate James Bay downstream in the future. And we're looking at Beckencourt as a location, we're looking at building potentially in Bethesda City where we have existing operations, and we're looking at other third party locations, including potentially other parts of Canada. I think the key drivers of this frankly will be customers and what customers are looking for from us. And also we're increasingly seeing certain parts of North America being willing to provide incentives, financing incentive, tax incentives, to encourage us to build hydroxide capability in different parts of North America. So we will continue to explore those. And when we have a decision, we obviously communicate that. I would say that we're fine by the way, selling spod concentrate for a few years while we develop these resources. In fact, it's a pretty good way to fund that asset will be through cash generated from Galaxy, generate a spodumene concentrate. But in the longer term, we absolutely intend to fully integrate downstream.
spk03: Thanks Paul. My follow-up was just as you think about the second capacity expansion in Argentina. I'm curious, as you've delayed this, do you see any sort of residual risk to delaying the capital spend there and trying to bring things on six to 12 months later? Is there a risk to sort of getting the completion crew back to finish the job at this point? And then in conjunction with that, do you anticipate putting more of these Phoenix expansion contract or volumes onto fixed price agreements?
spk14: You know, so two questions
spk10: I guess there, but I think in terms of both Sal De Vida and the Phoenix MDA expansion, slowing down actually helped us with execution. I mean, there's no doubt there's a shortage of qualified and capable contractors and trying to sort of compete, if you will, not only with each other, but also others in the region. It's not that easy to get the resources you need. So the ability to combine the two and put the product together, the project execution onto a more integrated path is actually probably gonna help us in many ways. Many of the synergies we talk about for construction down there, we're already starting to see. It also allows us, we're looking pretty closely at using some of the construction done at Sal De Vida around the ponds, which are largely complete to generate additional brine to feed into Phoenix as well, which will help drive more volumes, either in carbonate or chloride there as we develop those assets. So I don't see, I certainly don't see difficulty, if you will, in construction from slowing them down. And I certainly think there are opportunities and so forth, suggest there's opportunities to save total capital from doing that. In terms of contracting strategies, we've always said, I think generally speaking, carbonate in and of its own right, it's pretty difficult to put onto some of these contracts that we talk about, but carbonate and hydroxide in what I'll call kind of paired contracts where customers get optionality between those two is capable of being contracted that way. And so we will absolutely continue to look at both carbonate and hydroxide, kind of, if you will, as sort of a paired offering to customers in those contract structures. And we're getting a lot of traction with customers who are, as their own technology, battery technology, roadmaps chain, are really interested in having that optionality and bringing those two online will
spk14: only help us with that. Your next question comes from the line up, Rob Bernstein from Macquarie. Please go ahead. Hi, just wondering
spk08: regarding the EBITDA to adjust EBITDA and the restructuring and other charges, you provided a breakdown of integration costs of the 67 million. Just wondering, what are we expecting that to be next quarter and are we seeing an end of that integration spend? And similarly, does that include any study cost changes relating to Mount Catlin or any other assets that we could potentially see going forward? Thank you.
spk10: Gilberto, do you wanna answer that one?
spk13: Yes, so the cost that you see in the first quarter is, I would say, it's pretty much, I'll say close to 90%, 85% of the cost you're gonna see for the year. As Paul highlighted, we took some actions in terms, not so in terms of integration, to accelerate integration, but also the reduction in force that contributed to the higher charges. So we're not expecting at all the same level of charges that we had in the first quarter for the remaining three quarters a year. It would be very much smaller minimum compared to
spk14: the first quarter of the year. Thank you, and then as a
spk08: follow-up, the currency gains and losses, are we expecting that to be a constant, I guess addition to adjusted EBITDA going forward, given the currency moves? I mean, it's hard to forecast currency, so what's your expectation going forward?
spk13: Well, we don't actually, it's hard to, as you said, it's really hard to forecast and expect, so we're not necessarily counting on that as gonna be a recurring gain. So again, there are certain things that we hedge, but this element that we have to gain is actually an element that we cannot hedge, it's related to our cash balances. But again, we don't have the ability to forecast the fact, we don't assume we're gonna have those gains recurring in the next three quarters.
spk10: Well, as Roberto said, part of this is driven by cash balances, and as those cash balances come down, we won't have the same remeasurement issues with some of those cash balances, so we don't expect it to be the same magnitude again, who knows, we're exposed to the peso, it's supposed to other currencies, so there's always a chance of big swings, but we're not expecting them to be this magnitude all the time.
spk09: Your next question comes from the line of Kevin McCarty from Vertical Research Partners, please go ahead.
spk12: Yes, good evening and thank you. Paul, appreciate the detail on the average selling prices that show on slide five. Can you refresh us on how much of your pricing function is essentially floating versus fixed? And then secondly, if market prices were to trend flat from today's level, how would that 20,500 per metric ton number that you show trends moving forward? Do you think that that would likewise trend flat or is there upward or downward tension there related to your contracts? Any color there would be helpful.
spk10: Sure, so about two thirds of our hydroxide volumes are covered by these contracts. Pretty much everything else floats in some way, shape, or form either against an index or on monthly price or quarterly price renegotiations, depending on the business. If the market prices stay roughly where they are as the year goes ahead, we would expect that average price to slightly trend downwards, largely because most of the new volume we have coming on is gonna come on at those market prices. And the market price today is below 20,500. So just a simple averaging will drive that down. The contract structures and the contract prices are unlikely to change if market pricing stays where it is. Frankly, it's I think we've disclosed in the past because the floors or the fixed prices have kicked in at today's market prices and we don't expect those to be any different during the year. But as I said, as we bring more market volume, market-based priced volumes online, we would expect that price to take back down. Now the flip to that is if the market price starts to go up, more of the volume is actually exposed to increases because as the market price moves up through those floors and above them, then those floor price structures all start to become market priced. And so there's a reasonable scenario of prices that are not massively further north of where the market is today, that the majority of our portfolio will actually price with the market at that point in time. And unless we get really lucky, we're a long way from hitting the ceilings in those contracts. So we would expect most of the portfolio to therefore price on a floating basis.
spk12: Thank you for that. And then as a follow-up, I want to ask about your capital budget versus the DNA flow through. It looks like you took the capital budget down 100 to 125 million. I didn't see a lot of change on the production guidance, but perhaps I missed something. So maybe you can talk about why specifically that's coming down. And on the DNA side, Gilberto, I think you got it 245 million last quarter. Looks like one queue was quite small relative to that at 17 million. Maybe we could just talk about how you see that trending.
spk14: Sure, on
spk10: the capital side, I think that, sorry, on the capital side, the question is really straightforward. You know, the spending on capital on growth projects can have multiple quarter lags as to when commitments are made and when payments are made. And so decisions to slow down capital spending don't instantly hit your spending numbers. So Q1 was absolutely a lot of spending of commitments made last year by both companies as independent companies. So we expect to see that spending trend downwards as the year goes on as we move to these revised execution plans that we have in place. And that's really all you're seeing in there. Gilberto, if you want to talk on DNA.
spk13: Yeah, on DNA, the way we start amortizing the assets is when they really come, what we call commercial production that we're selling the products. And we're expecting those assets, both Polaroid and Phoenix 1A to start commercially volumes be sold, as we said, you know, late Q2, early Q3. So as a result of that, you're going to start seeing the depreciation picking up throughout the second half of the year, already Q3 and Q2 as well. So that's primarily the difference.
spk05: Yeah, and Kevin, just to clarify, we were referring to growth capex in our slide. It was excluded in 100 and 125 of maintenance capex that we
spk14: got.
spk05: So
spk14: we need to include that as well. Your next question
spk09: comes from the lineup. John Roberts from Miseo, please go ahead.
spk02: Thank you. The percent of the volume under contract goes down as 2024 progresses. Is it too early to say if it resets back up in early 2025?
spk10: No, it's not too early. Some of the volume that we have coming online this year, we've allowed it to float with market, partly because of the state of the market, but partly because we have higher commitments under some of these contracts starting next year. So there's a natural already contracted step up in the amount of volume that will be under these contracts starting next year. Again, that's not new contracts, they're actually existing ones that have step ups in them. But again, as we bring more volume on, you're going to see this sort of step process happen quite frequently where we will bring volume on in advance of contract commitments in that sort of stub period, we will allow it to float with the market and then that volume will then get absorbed into some of those contractual commitments looking forward. So it'll move around over time. I would say as we have a higher carbonate mix though, which we will as a combined company, then you will have seen Lyvan have in the past, then you are gonna see less of the volume under these contracts on a percentage basis, simply because as I said before, most of the carbonate is not sold on that basis.
spk02: And then Albemarle began conducting reverse auctions for lithium during the quarter. Do you need to do something similar or what they're doing benefits the industry overall so there's no need for others to follow?
spk10: Yeah, I think it's all, everybody's testing out what the state of the market is and how it views, I'm not particularly close to what Albemarle did. I know there's a bunch of people who've been doing this in spot concentrate and I think there's certainly an opportunity in some of the more commoditized parts of our market like some of the technical grade carbonate to explore the market. I think it really reflects the lack of confidence that most people have in some of these indexes and the way the indices don't really reflect through market conditions at large parts of time, both when they're really high and when they're really low. And so I think we're all trying to kind of get a handle on what the real market is. It's a more diverse market today than it was a couple of years ago, which is you would expect as it grows, there's more buyers in the market, there's more people kind of speculate frankly around certain parts of the market, especially in some of the pieces of the carbonate market. So I really do think as an industry, we're all trying to understand what is the real environment out there, pricing environment and more importantly, demand environment. So I think we'll all be at various points in time testing out different ways to have better price and volume and demand discovery.
spk14: Thank you. Your next
spk09: question comes from the line of Stephen Richardson from
spk01: Everycore.
spk09: Please go ahead.
spk01: Hi, thanks. Paul, now that you've had some time with the assets and through the integration, could you give us your latest thoughts on, you produce a lot of really high quality carbonate at Phoenix and maybe some lower grade elsewhere in Argentina. And could you talk about, it always seemed to us like there was an opportunity there to maybe feed some of your hydroxide plants with some of the lower grade and sell some of the higher grade. And I know that's probably easier on paper than it is in practice. But I was wondering if you could get your thoughts on that.
spk10: Yeah, no, look, you're absolutely right. It's not that difficult to do in many ways. It just takes time, right? So we're definitely doing and exploring that. As you know, we run multiple hydroxide lines fed from carbonate from Phoenix and replacing that with carbonate from Allorose is absolutely a core part of our strategy. But every line run and every customer will require a re-qualification. We will need to make sure that we're getting a version of carbonate from Allorose that fits the needs because obviously we can change the parameters at Allorose too. So it's a little more complicated in terms of figuring out what impurities we can and we cannot handle. And it varies by hydroxide line. The newer hydroxide lines have much wider tolerance of what they can use than the old ones. But it's a real opportunity, I mean, because like you're spot on, I mean, you didn't ask the question, but if you look in the first quarter, the price differential between selling technical grade or selling battery grade carbonate for us at least was really, really wide. And so to be able to tap into sell more battery grade, which we don't have a lot of, because it's all produced by, most of it anyway, produced by Phoenix, the legacy live in asset and consume more of the technical grade, it's a real synergy opportunity. I don't expect to see a lot of that happen this year because of the time it takes, but looking into next year, absolutely something that we are expecting to be
spk01: doing. Appreciate that. I guess it's something we'll look forward to discuss at the analyst day later in the year. Other question just on, and maybe I know there's a lot of moving parts on the financials here, but Gilberto maybe, on a pro forma basis, I know we have legacy live in financials at year end and then now the pro forma Q1, but considering if I just look at the 20,000 a ton realized price, were you cashflow neutral sequentially or was there a cash burn on a pro forma basis? And again, I know there's a lot of restructuring as well, but just wondering is the program self-funded at 20,000 a ton, I guess is a simple question.
spk13: Yeah, I think the simple answer to the question is the program is self-funded at 20,000 or even honestly, maybe a little less than that as well.
spk14: So we're not really concerned about that right now. Your next question comes from the line of
spk09: Joel Jackson from VML Capital Markets, please go ahead.
spk15: Actually gonna fall off on that question, everyone. I thought you disclosed or gave disclosure that pro forma cash was about a billion dollars when the company merged and now I think you ended March quarter with around half a billion of cash. So it seems like cash dropped about a half a billion dollars in the March quarter, could you please elaborate on that?
spk14: So
spk13: I'll take that fall. Joel, it's honestly, that's a little more complicated now because we're having a mask on those numbers, right? And when I look at the overall cash position that Arcadium excluding the mask I have, I know it shows 472 in the thank you, but after you do some what I call adjustments and cash that is restricted, this number is actually close to, it's 65 million dollars higher than what you have there just for Arcadium side. So we, but yes, in the first quarter we have important spending, again, a lot of driven by transaction cost integration severance. We also have some big tax payments that we have done in the first quarter and we have made an investment in Iliad that also was a cash outflow about 30 million dollars. So again, first quarter was a very big cash outflow quarter that is not gonna be repeated in the next three quarters of the year. So don't take that as a proxy for the remainder of the year.
spk10: I think Joel, I think you did a bit of rounding there which makes it sound worse than it was. It wasn't a billion dollars, I don't believe it was 800 and change and as Roberto says, our actual effective cash balance, which we can talk to offline about why this happens is north of 500 million, but there was certainly a meaningful cash burn as a result of all the costs of closing the merger and integration costs, all that stuff in Q1, which I said absolutely not going to be repeated for the rest of the year.
spk15: Okay, thanks for that, Colorado. I'll ask my second question. In looking at some of your slides on CapEx, so the next year and expansion, so, and this is sort of what I know how Lyman would talk about projects. So you talk about 170,000 tons capacity at the end of 26, which the first part of the question is, that's obviously not production or sales volume. Could you talk about if you do hit all these targets, what would 26 and 27 production volume sales look like? And then just on the second part of that question would be your 25 and 26 CapEx guidance you gave on slide 10. Could you break that down by the projects or maybe by Canada, Argentina, as you've done in your prior deck? Thank you.
spk10: Yeah, so let me, it's a little early for me to give you 26 numbers because I think you can kind of see this year, as we bring on Phoenix and Oleros too, you can delay or accelerate production levels by two, three, four months easily, and you can go straight to nameplate or you can have a bit of a slower ramp depending on time of year, conditions, et cetera. So we're going to have at the end of 2025, almost exactly the same as we had at the end of 2023, where we have Saldo Vida, which is analogous to Oleros, a pond-based conventional process, complete and now producing. That will ramp at a different rate to the Phoenix expansion completed at the same time, which tends to go immediately to full nameplate production. So it's a little difficult for me to answer that one as with that, it'll be misleading, frankly, and so I'm going to reserve the right to tell you the numbers on that one later. I will tell you though, those nameplate production numbers, we don't have a nameplate and I think we're going to run them at 70% of nameplate. That's kind of what the future production level should be at once they're all up and running. So certainly once we get into 2027, probably still some ramping up or qualification delays happening with Beckincourt, but everything else will pretty much be running at those numbers in 2027 for sure. And so your second question was on what, sorry,
spk14: Joel? And the second question just is on Dave for
spk15: 20 and 25 and 26 on slide 10, 600 million 2025, 475 in 26 for growth capex. Can you break that down by project or like you've done before Canada versus Argentina? Thank you.
spk10: Yeah, so we're going to do that in September when we do an invest today. And the reason we're not doing it today is not because we don't know the answer, but there's different ways to talk about capital spending. And what we find is that the way Alchem spoke about it and the way Leiven spoke about it, we're both correct, but we're different. So we're giving a bit of work today to standardize those processes and make sure that we can talk about everything in a consistent manner. So we'll ask for a little patience on your part. It's not that long till September. So we will certainly be disclosing more of that detail and a lot more granular detail project by project
spk14: at that point. Your next question comes from the line of Kate MacKishon
spk09: from Citi. Please go ahead.
spk11: Good morning for all and evening to the project. Funding for your 1.6 billion over the next few years, the development of the Canadian asset, are you still looking at being able to do a prepayment deal there similar to the GM deal, for example? Is the appetite still there from the OEMs to do that? And I guess, how are you thinking around funding strategies? So after, and you mentioned that you had the facility available.
spk10: Yeah, look, I think the customers have a different view depending on two primary variables. Variable number one is what do they need and variable number two is where is it? So if it's IRA qualified lithium hydroxide, then yes, there's appetite for prepayments, for long-term commitments, for really frankly, structures that look very much like the ones we have in place today. If it's not IRA qualified and it's, whether it's spodumene or it's carbonate, far less interest in customer funding, whether it's prepayments or other approaches. Now, and again, it varies by potential customer. There's no doubt that we could run a list off today of half a dozen to 10 customers that are very, very interested in providing capital in return for security or future supply. And I can give you just a longer list of customers that aren't pursuing that strategy as well. So it's definitely there. I wouldn't describe it as a market norm and I would describe it as linked to very specific assets, projects and customer requirements.
spk11: Yeah, so on funding that, what is your base case for that 1.6 million over the next few years? 1.6 billion? Yeah,
spk10: look, we have some, as you know, prepayments already in place. They'll contribute towards that funding requirement. We explore, it's difficult to sit here today and say we are gonna exactly do funding in a prepayment or from a customer or from other sources. We have some pretty active and detailed conversations going on today with government bodies that are willing to provide funding, both low cost of interest-free loans, forgivable loans, but also just grants, outright grants. So that's a pretty active conversation going on. We also have conversations with customers too about what they're willing to do and where they're willing to invest capital. So again, as and when we have that funding arranged and in place, we will be disclosing it.
spk11: Okay, and then my follow-up question, now Catlin doesn't feature in your outlook to 2026. Just remind me, when are you expecting that asset to run to and does the subsequent contract require a different price than what we've got today?
spk10: Yeah, look, the answer is very different depending on what future pricing is. Today we're seeing spot concentrate in the second quarter, moving at about $1,200, maybe a bit more, but turn on an SC6 basis. So 20, 25% higher than we saw in Q1, which is obviously good news for Mount Catlin, but it's not high enough to justify the significant capital that will be needed to move to the next phase of mining at Mount Catlin. We hope to, and we're hoping to see the pricing increase and I think it'll be good news for everybody if we can do that. But I think, Stan, today at least, it's quite likely that we will not be, at today's pricing environment, Mount Catlin's unlikely to be operating when the current mining plan ends, which is sometime towards the end of 2025 into early 2026. And so that's really why we leave it out of these numbers because today we don't have any visibility or any confidence at today's prices that Mount Catlin will be expanded
spk14: beyond where it is today. Your next question comes from the line of
spk09: Christopher Parkinson from
spk14: Wolf Research.
spk06: Please go ahead. Great, thanks, Liz Harris. Fine, I'm for Chris. So for a good portion of the quarter, and I believe still today, hydroxides trading at a little bit of a discount to carbonate, I guess, just due to differences in EV demand by region. Now that you have a lot more carbonate capacity coming online, has your thought process changed on how you'd like to allocate those tons or is there any more flexibility in how you can fully optimize the value per ton that you're realizing?
spk10: So look, at first, on your point, I struggle with the statement that hydroxides trading at a discount to let them carbonate. There's no doubt the industry's point to that data. You're absolutely right, but that's absolutely not the case in our portfolio. I can assure you that the hydroxide price in our portfolio is not only not at a discount to carbonate, it's a significant premium to carbonate. But that probably reflects that it's qualified material, qualified into supply chains, and largely outside China. So, while ever we see that premium and that customer commitment for, you know, ex-China lithium hydroxide, frankly, we're gonna continue to pursue it. We do like the fact, especially in China, that we have that flexibility to not sell the hydroxide if we don't want to. We don't have to run those plants because of the way they're structured. They don't carry a large fixed cost and they're not particularly capital intensive to us. So we can choose to sell carbonate in that place. And we will, as we need to. We'll meet the customer commitments. But frankly, the China assets are the swing assets to allow us to take advantage of both what customers need in China, but also price opportunities and the commitment will continue to be to maximize value per LCE in that carbonate and hydroxide chain.
spk06: And for my follow-up, I don't think we touched on this yet. Just, what's your view of where inventories stand right now at the cathode producer level? And are you seeing any signs of restocking right now?
spk10: So I think it's a really, really interesting question because one of the characteristics of today's market, in my view, is almost no lithium held in the supply chain, but no great appetite to rebuild inventory at this point in time. I think there were two reasons for that. I think the places where you build inventory is really in carbonate. You're not building a lot of hydroxide inventory for the long run, just because of the nature of lithium hydroxide. And we've certainly seen intermediaries step in and be willing to hold that carbonate inventory, GFX and others. There's certainly some carbonate being held there, which is giving some of the supply chain more confidence that there is some slack in the system for them if they need it. I think the second big effect, though, is the cathode producers don't really have yet the visibility, therefore the confidence they need as to what the technology roadmap looks like for the next 12 to 18 months for many of their customers. There's sort of three different flavors out there. There's LFP, there's high nickel, and there's mid-nickel. And you've got sort of, LFP is obviously predominantly lithium carbonate. High nickel is all lithium hydroxide, but in the middle there, they can kind of swing in different directions. And we're tending to find that there's just not a lot of confidence to build in advance because there's so much variability today in that OEM to battery to cathode part of the supply chain as to exactly what's going to be needed. So I think we need more clarity there first. And I think when that clarity starts to appear, then we'll get the restocking
spk14: that everybody's looking for. Her next
spk09: question comes from the line of Pavel Mokhanov from Raymond James. Please go ahead.
spk07: Well, thanks for taking the question. Two regulatory questions. First one, in Argentina, you had the press release in mid-March about the court ruling. I know it does not affect any existing operations, but could it affect any future expansion plans?
spk10: Look, I think Argentina's got lots of moving pieces to it. I think there's a very low likelihood that it impacts future expansion plans too, because most of what we do in the expansion plans is part of existing operations being expanded rather completely new environmental permits that have to be issued. I think there's a lot of debate about how enforceable that ruling is or was. And there's a lot of changes being made by the province of Catamarca, by the political authorities to, if you will, fix that ruling. It requires them to take certain actions and require certain things, which they frankly largely do anyway and will do. They're very focused on making sure that investment continues to happen. I mean, particularly under this administration with less funding going from the federal government into the provinces. Direct investment by companies such as us is even more important to provinces like Catamarca and Salta and Huhui. So we think it's a very low risk that it will impact expansion plans.
spk07: Okay, kind of a broader question about the industry. We have seen some headlines about the Chinese lithium players looking to acquire more and more overseas assets. How are you looking at that whole dynamic?
spk10: Yeah, it's a difficult one. I think you know as well as anyone that being a Chinese buyer in some key lithium jurisdictions is not easy. You know, you're not going to have to buy in the US, not going to have to buy in Canada. Very low likelihood that you can buy much in Australia too. So there aren't many places for them to go. Argentina, we've seen them going. Chile is complicated as some of our friends know. Not saying they won't do it, but it's complicated as well. So there really aren't that many places to go. It frankly explains why they've invested so much capital in my view in Lepidolite and in Africa too because really high quality assets that they would prefer to have just aren't available
spk14: to them. Thanks very much.
spk09: Your
spk14: next
spk09: question comes, sorry, your last question comes from the line, Alexey Efremov from Key Bank Capital Markets. Please go ahead.
spk04: Thanks, good evening everyone. I just wanted to clarify on your 170 kilotons target by 2026. Is this a high confidence for approved projects where you have visibility into sources of capital or is this a high confidence for approved projects or should we think about it as your aspiration which is conditional on finding capital at attractive cost?
spk10: So I guess there's two answers to that. I think the projects themselves are very well advanced. These are not speculative projects. If you think about how far advanced they are and it's always a gray area about the numbers I'm about to throw out to you, but largely speaking, the projects are between 30 and 70% complete and the engineering for most of these projects is much more advanced than that. And so these are projects that are well, well underway, very high visibility as to what the project looks like, what the timing is, there's a lot of contracting been put in place, construction's underway on pretty much all of them as well. So the projects themselves and therefore the 170,000 tons is a very high confidence. I would state the same frankly with regard to the financing as well. I mean, clearly some of the biggest financing that's gonna be required is up there in Canada, but Canada is a really interesting place for many reasons. There's a lot of potential government funding available because particularly the downstream assets are seen as really important to a broader Canadian battery supply chain that they're trying to encourage to be built. Also frankly, an easier place to get funding from customers and from other potential partners who feel confident in investing in Canadian assets and Canadian resources. So we are clearly still working through what is the best actual way to finance it and a big chunk of that depends on where the price goes and therefore how much cash we generate internally. But we have a really high confidence in the ability to fund those expansions.
spk04: Thank you. The follow-up, your $15 per kilogram low-end scenario, this is where I understand the market to be right now, yet your ASP was 20 plus and he won. So should we take it as you're outperforming the market and low-end of your own EBITDA scenario by about $5 per kilo or should we just look at you being at the low end whereas you had 20 in the market at 16?
spk10: Yeah, look, it's an interesting question. Couple of points, couple of observations. You can't really judge the market on a quarterly basis, which is why we looked at it on a full year basis. I mean, we touched upon things like quarterly lags in pricing that can distort things on a quarterly basis. I think the second is that our exposure to market prices in Q1 is much lower than it will be in the rest of the year as more volume comes online. The market today is below $15, by the way. I think generally, if you're just gonna try and sell an unqualified product, quote, into the market, that's largely gonna go into China and it's gonna be below $15. Not a long way below, but certainly a touch below $15. So I think we did, quote, outperforming Q1, but it's not necessarily because we were able to achieve a different market price. It's just that our portfolio had much less exposure to that market price in Q1. And we'll see that trend start to reverse or at least change a little as the year goes on and we have more exposure to the market. So if the market stays exactly where it is today, yeah, I think the market's probably a touch below $15 in China, it'll probably about what they're outside China. So we'll wait. We still need to see where the market actually unfolds
spk14: to see how we do relative to those numbers.
spk09: That concludes our Q&A session. I will now turn the conference back over to Daniel Ronson for closing remarks.
spk05: That's all the time we have for the call today, but we will be available following the call to address any questions that you may have. Thanks, everyone.
spk09: This concludes our Q&A medium first quarter 24 hours in conference call. Thank you.
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