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Operator
Chief Financial Officer. This live presentation that accompanies our results, along with our earnings release, can be found in the investor relations section of our website. Prepared remarks in today's discussion will be made available after the call. Following our prepared remarks, Paul and Rebecca will be available to address your questions. Given the number of participants on the call today, we would request a limited one question and one follow-up per call. 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 on 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, including adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per group of the Chair, and adjusted tax rate. 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
Paul
call over to Paul. Thank you, Dan. Arcadium lithium reported strong results in the quarter, despite market conditions remaining challenging and lithium market price indices ending the quarter at lower levels than they started. Our financial performance continues to show the benefit in these market conditions of our low-cost operating footprint and our commercial approach of securing long-term contracts with strategic partners wherever it makes sense to do so. In the last quarter, this helped us to achieve higher realized pricing than we would have had we been following a fully market-exposed pricing approach. As a consequence, we delivered an adjusted EBITDA margin of close to 40% in the quarter and for the year to date. Arcadium lithium realized average pricing of $17,200 per product metric ton for our combined hydroxide and carbonate volumes in the second quarter, with our butyl lithium and other specialties products achieving a price per LTE that was significantly above this. Our multi-year customer relationships and the wide range of high-quality lithium products we produce means that we can continue to focus on operating our network to maximize the value we achieve per LTE wherever possible. We brought significant additional production capacity online at both Oloros and Phoenix this year, and we expect this to result in a 25% increase in combined lithium hydroxide and carbonate sales volume in 2024. The timing of the volume additions, as well as the nature of the stock of processes, means that we expect 25% volume growth again in 2025 from these already completed expansions, given us two consecutive years of above-market volume growth. We continue to make significant progress on cost savings as we implement various integration efforts across the two legacy businesses. We expect to realize cost savings in 2024 towards the high end of our $60 to $80 million guidance range. We are also pursuing a program of accelerating the total cost reduction initiatives that we announced with the merger. As a reminder, we previously announced that we expect to achieve total cost energies of $125 million per annum by 2027, and we're now targeting to deliver these savings faster. It's increasingly clear that at current lithium market prices, our industry cannot invest in capacity expansion at the pace announced today. Arcadian lithium's expansion projects are forecast to be amongst the lowest cost operations globally when completed, and we remain committed to developing all of them in the coming years. However, the market today is clearly indicating to our industry that accelerating the delivery of additional supply volumes is not what is needed if the market is going to be in balance. We have therefore decided to slow down the pace of our own expansion plan by pausing investment in two of our four current expansion projects. Consequently, we will invest in our growth on a timeline that is supported by the market and our customers. This will allow us to reduce our financial commitments during this period of low market prices, reducing our total capital spending over the next 24 months by approximately $500 million on maintaining flexibility to restart these projects at an appropriate time in the future. I will now turn the call over to Gilberto to discuss our second quarter performance.
Dan
Thank you, Paul. Starting us like four, Arcadian lithium reported second quarter revenue of $255 million, adjusted EBITDA of $99 million, and adjusted earnings of five cents per diluted share. Total volumes in the second quarter were slightly, were up slightly versus the first quarter, with higher carbonate and hydroxide sales partially offset by lower spodumene sales due to reduced production at non-cap. Average realized pricing was higher sequentially for spodumene, but lower across all other products. This decline was driven by a combination of lower market price for lithium chemicals, the lagging back of price indices on a portion of our carbonate and hydroxide volumes, and changes in both product and customer links. Adjusted EBITDA margins were positively impacted by lower operating costs, while partially offset by some negative effects impacts. As a result, the company achieved an adjusted EBITDA margin of 39%, demonstrating our leading low-cost position in Argentina and the earnest power of our business in these challenging market conditions. Turning to slide five, we provide further detail on second quarter and -to-date performance from our key product groups. Lithium hydroxide and lithium carbonate together make up the core of our business, comprising nearly three-quarters of our total revenue. On a combined -to-man basis, we sold roughly 10,800 metric tons at an average realized price of $17,200 per metric ton in the second quarter. While pricing was lower -over-quarter, this is higher than would have been achieved as we pursue a fully spot market-based sales strategy. We continue to benefit from various price scores and firm annual volume commitments in place with a select group of core customers under multi-year agreements. Average realized pricing across good to lithium and other lithium specialties was also down versus the prior quarter. However, these products continue to deliver very high value for their underlying lithium content, while reducing the overall volatility in our portfolio over time. For Spodumy, we sold roughly 23,500 dry metric tons in the quarter from our cap line at an average grade of 5.3%. Volumes were slightly lower, consistent with the reduced mining production plan for the year. We achieved average realized pricing of just $1,000 per dry metric ton on a SC6 equivalent basis, which was up over 20% versus the first quarter. The cash operating cost of production amount cap link remains at approximately $700 per ton due to reduced mining activity. I will now turn the call back to Paul.
Paul
Thanks, Alberto. I'd like to provide some market observations of that on slide six. Beginning with the obvious, there continues to be a broad negative overhang on the lithium and energy storage space as we move into the second half of the year. Lithium prices moved lower in the second quarter and have declined further, third quarter to date, testing new lows in that cycle. There are a few dynamics we can point to that are contributing to this price weakness. Touching briefly on demand, it's safe to say that while there's been some recent pullback in near term US and European EV demand growth, demand growth globally remains robust. On a gigawatt hour basis, total EV and PH EV sales were 20% higher year over year in the first half of this year. Underline growth in China, where the bulk of lithium demand resides today, remains strong with EV sales exceeding 1 million units in the month of June and penetration rates continuing to set all time high. Additionally, demand growth of stationary storage applications continues to be a rapidly growing part of the future total demand picture. In aggregate, there's been very little fundamental change to the long-term demand trajectory of the lithium. And this growth is going to continue to require meaningful additional supply to come online if the market is going to be in balance. However, we clearly don't have that balanced market today. Additional lithium supply has come into the market at a faster rate than many of us have expected. Much of the supply growth has come in the form of spodumene out of Africa and lapidolite in China, which is much higher cost than most existing supply. But much of the investment in these resources is coming from supply chains directly connected to converters or end consumers in China, as they seek to become more integrated into upstream resources as part of their strategy of establishing long-term security of supply. This is resulting in lower demand growth for unintegrated spodumene, even as end market demand for lithium chemicals continues to grow. It also reduces the demand for some lithium chemicals, but more consumers or fully integrated converters in China are now producing lithium chemicals themselves. Put differently, while the volume of lithium chemicals being processed into the battery supply chain continues to increase at double digit percentages per year, the market for nonintegrated spodumene concentrate and lithium chemicals has not been growing at the same rate in recent quarters. Despite this slower external demand growth for lithium products, we've seen spodumene producers in particular continue to increase both their production and shipments of spodumene concentrate. Our own marketing of small volumes of spodumene concentrate from Mount Catlin shows that the demand for material remains broad, with over 20 bids received for our latest market testing auction. However, the increase in supply appears to be even greater than this broad demand can absorb, leading to more downward pressure on spodumene prices. And history shows us that when spodumene prices are low, lithium chemical prices in China are also going to be low, and that is certainly the case today. To compound this, we've also seen supplies of lithium carbonate in South America continue to grow, albeit at slower rates than the growth in spodumene supply. As a result of this increased supply, we see higher levels of lithium carbonate and spodumene concentrate inventory in the market right now. Much of this inventory is being held by traders and through futures exchanges, where activity is increasing rather than at producers or at end customers. The greater customer and converter integration and a greater willingness of intermediaries to buy and hold material, combined with the continued flux in technology roadmaps of global OEMs is resulting in less visibility for lithium producers into true underlying end market demand than we have had historically. It's easy for producers today to see end use consumption continue to grow, see this as a proxy for market demand for lithium chemicals. However, the evidence suggests that in today's environment, this connection is not holding true in the short term. Despite this, we view longer term lithium prices as heavily skewed to the upside from today's levels, with those limited ability for prices to move much further down from current levels on a sustained basis. In fact, we believe that prices in China today are well below the cost of the marginal producer, significantly below the prices needed to incentivize further investments. The longer prices stay where they are, the greater the likelihood of production containment from high cost resources and the lower the investments in future supply. We expect that end market demand growth rates and lithium chemical demand growth rates will return to alignment as the pace of back integration slows and this will result in prices increasing towards reinvestment levels at that time. While we have seen more announcements today of slowdowns and delays from both incumbent producers and junior developers, we do not expect these to materially impact the market in the next few quarters. However, we do believe that the forecasted supply for 2026 and beyond in most independent models is much too high given the impact of these slowdowns. We expect to see more discipline from producers and less freely available and more expensive capital, especially for those projects that are not backed by existing cashflow or are being developed by companies without a proven track record of success. We also do not believe that the Pidlite or African spodum environment can continue to expand as the rate we've seen in the last few years and perhaps just as important, financial logic of downstream conversion of raw materials into higher value products, especially outside China, will face much higher challenges resulting in a very tight market for lithium hydroxide that is not sourced from China. We remain confident in a return to healthier market fundamentals over time as well as in the world-class development projects available in our portfolio. However, we must adapt to the realities of the market we find ourselves in today and the pace which we can responsibly invest capital on that basis. Arcadium lithium has therefore made the decision to pause investment at the Galaxy project in Canada. This remains a world-class resource, leading fundamentals and a projected operating cost that will be amongst the lowest spodumene assets in the industry. However, we do not believe that the market needs us to bring this volume online on a merchant basis within the next two years. And as I just mentioned, the current economics of building carbonate or hydroxide conversion capacity outside China absent a very strong long-term customer commitment are not compelling. We can't explore it bringing in a partner that is interested in providing capital for the Galaxy project in return for a long-term strategic investment likely backed by long-term supply agreements. The pause will be structured to minimize the cost and timing disruption when this project is ultimately restarted. Additionally, arcadium lithium is revisiting the sequencing of its combined 25,000 metric ton lithium carbonate projects at the Salar del Ombres Muertos in Argentina between Phoenix, phase one B, and the Vida, phase one. These projects are also industry leading with forecasted operating costs firmly in the first quartile of the lithium carbonate production. However, rather than execute both expansions simultaneously as previously announced, the expansion will now be completed sequentially. Doing this will also provide additional time to evaluate how to optimize future development of the Salar del Ombres Muertos complex where the two projects fit within a few kilometers of each other, especially with respect to the additional infrastructure investments that will be needed for future expansions. It will also allow us to spread the capital spending over a longer period of time. We are not changing our plans for the development of namaskar lithium, the 32,000 metric ton integrated spot meter hydroxide project in Canada. The combination of our progress made to date and the strong customer commitments we have in place for the project give us confidence in continuing to push forward towards commercial production. As with our decision to defer investment into our four current expansion projects, as well as the process of identifying cost saving opportunities in our remaining projects, we expect to reduce our capital spending by approximately $500 million over the next 24 months. These decisions do not reflect any change in our view of the attractiveness of these projects. But in today's environment, we will focus on cost discipline and operational execution that continues to differentiate the performance of our business in this market, as well as on responsible capital deployment that we navigate through low market prices. Our portfolio of operating and development assets remains core to the value and future of this business. And we intend to provide a detailed review of our expansion plans, financial outlook, and broader strategic objectives at our upcoming investor day on September 19th with further details on this event to follow. So moving to slide eight, we're providing a few 2024 specific updates for our Cajun lithium. We recently announced our acquisition of the lithium metal business of Light Metal Corp for $11 million in cash, which includes intellectual property and lithium metal production assets, including a pilot production facility in Ontario, Canada. This acquisition strengthens our position as a global producer of lithium metal by providing safer, lower cost, and more sustainable processes for lithium metal production using varying grades of lithium carbonate as free stock. This complements the lithium chloride fed process from our operations in Argentina the week today. It will improve the capabilities of our butyl lithium and high purity metal businesses, while increasing the flexibility of our integrated network of assets and our ability to maximize the value of the lithium that we sell to our customers. Additionally, we continue to make significant progress in identifying and executing on merger integration and cost saving initiatives across the two legacy businesses. As a result, we now expect to realize synergies in 2024 toward the high end of our $60 to $80 million guidance range. This is driven primarily by organizational restructuring, operating and logistics savings, and the elimination of third party and other services across the two companies. Looking beyond 2024, Arcadia Militium is accelerating its plans to achieve total cost savings of $125 million per year within three years of merger closing. We have commenced the program to accelerate the delivery of these cost savings and will provide further details regarding these plans in the coming months. With respect to our recently completed capacity expansions, we continue to increase production levels as we move through the startup processes. We're now expecting a 25% increase in combined lithium hydroxide and carbonate sales volumes before the year 2024, with the volume growth becoming predominant in the second half of this year. These expansions will continue to increase their output in the coming quarters, leading us to forecast a further 25% increase in total volumes 2025 compared to 2024. The first 10,000 metric ton lithium carbonate expansion at Phoenix, phase 1A, is fully commissioned and operating today, and we expect it to be reducing that full operating target, operating rates and target quality levels by the end of the year. This rapid move to nameplate operating capabilities is a direct consequence of using the same direct lithium extraction process already in place at Phoenix. The 25,000 metric ton carbonate expansion at Oluwose, stage two, is producing lithium carbonate that will be slower to increase operating rates and meet design quality standards due to the nature of conventional pond-based extraction processes. We expect stage two to continue to increase production rates throughout the second half of this year, while more consistently meeting design quality and to be well on its way to what nameplate production levels later in 2025. The lithium hydroxide, the 5,000 metric ton unit in Bessemer City, North Carolina, 15,000 metric ton unit in Zhejiang, China, and the 10,000 metric ton unit in Narao, Japan are all finalized in qualification to key customers. They are expected to increase commercial volumes as soon as the lithium carbonate production in Argentina increases for people. I will now turn the call back to Gilberto to discuss our updated Oluwose 2024 outlook.
Dan
Thanks, Paul. Turning to slide nine, you will see our updated 2024 volume group translated to sales expectations by major products. Combined hydroxide and carbonate sales are now expected to increase by 7,000 to 12,000 metric tons for 25% higher than 23 on a LCE basis at the midpoint. We have maintained our projection for lithium carbonate sales this year while reducing lithium hydroxide sales. This is for two primary reasons. First, the small delays in our carbonate expansion ramp ups meant that our downstream hydroxide production plans were also slightly impacted for 2024. Second, and more importantly, at the current market price, we have found more attractive opportunities to sell additional carbonate volumes to customers versus selling uncommitted hydroxide volumes, particularly when factoring in the additional conversion costs. We are able to leverage this commercial flexibility to work currently to carbonate hydroxide conversion process. Given we will not be reducing the firm volume hydroxide commitments under our multi-year agreements, and we're now expecting to sell fewer remaining hydroxide volumes to customers near prevailing market prices, this will provide a customer and product mix benefit to us that you will see shortly in our scenario outlooks. We have also slightly lower our projected spotting in sales for 2024. It will result in second half sales volumes being fairly similar to the first half. On July 10th, I want to provide some commentary on our outlook for other financial items. We have made no adjustments to our full year outlook for STNA or diluted share count, inclusive of 67.7 million diluted shares from treatment of the convertible notes outside. With respect to DNA, we lowered 2024 outlook by 45 million. This is due to a combination of lower expected run-up of new production assets, as well as accounting rules that determine when parts of capitalized spending can begin to depreciate. We have narrowed the range of our adjusted tax rate to 25 to 30%, lowering the midpoint by 1.5%. It is a result of our progress as Arcadian Lithium continues to integrate the combined operating model as a global business. And for CapEx, we have lowered the high end of our guidance, resulting in a range of $557 million. We expect quality cadence in the second half of the year to be more in line with second quarter spending. On July 11th, we have provided an updated framework to understand how changes in the market prices for the second half of the year may impact the financial performance of Arcadian Lithium for the full year framework as well. We have shown two scenarios using general lithium market prices assumptions of 12 and $15 per kilogram on an ILC basis for the second half of the year. We keep constant the midpoints of our latest expected sales volumes, cost savings, and STNA for 2024 by overlaying existing commercial agreements as applicable. These scenarios should not be interpreted as a forecast by Arcadian Lithium as to the likely range of lithium price in the second half of 2024, which they are not. However, they were lower from the initial pricing scenarios we provided in order to be more reflective of where the market is today. You will continue to see that in the lower case where Arcadian Lithium achieves a $12 average price for ILC on its market-based volumes, the business remains highly resilient to -by-law quality and low-cost production assets, while offering significant upsides to the price rebounded fact-basedly.
Paul
Back to you, Paul. Thanks, Roberto. So to wrap up quickly before taking your questions, I just want to reiterate the strong performance of Arcadian Lithium in the first half of the year. We've generated over $200 million of adjusted EBITDA at a 40% margin so far this year, even as the pricing framework has been weaker than we initially expected. And we continue to drive cost and performance improvements throughout our expanded operating network. We'll continue to invest in responsible growth, focused on making sure we position the business to perform well throughout all market cycles. We will look to use our balance sheet sensibly and make sure we're neither investing ahead of or behind what the market needs. We look forward to speaking with you in further detail about all of this at our Invest Today in September. And I will now turn the call back to Dan for questions.
Operator
Great, thank you, Paul. JL, you may now begin the Q&A session.
Paul
Thank you. If you would like to ask a question at this time, please press star then the number one on your telephone keypad. Please limit yourself to one question and one follow-up. If you have additional questions, you can jump back in the queue. To withdraw your question, simply press star one again. We'll pause for a moment to compile the Q&A roster. Thank you. Your first question comes from the line of Steve Richardson of Evercore ISI. Your line is open.
Steve Richardson
Hi, thanks for the time this evening. Paul, I appreciate the context on sounds like, some of the concerns around visibility of the market and underlying demand. As you think about putting some of these projects in care or slowing down some of your capex, again, it might be early, but I wonder if you could think forward as to what would make you reaccelerate. Clearly some skepticism about market prices and indexes. Is it going to take kind of direct OEM involvement or capital producer involvement? Maybe just talk about what would get you kind of more excited about reinvesting beyond just obviously a rise in spot-wipping price?
Paul
Well, I think it's hard to separate the two. I mean, if we don't have, if the models that we use to assess whether a dollar invested is going to generate a return dependent on the price, the price has to be high enough, like period. Does it mean the short-term spot price increases? Is that enough to convince me? Probably not. I think understanding what's going on in the markets and the dynamics play out and understanding really what the demand patterns look like. What is the demand for hydroxide versus carbonate? How much merchant spot do you mean is the market actually going to need? I mean, these are factors that are pretty important when we look at each asset on a -by-case basis. It's frankly easier to accelerate a project that has a strong commitment from a customer or two, whether they put capital in or not. If the commitments are there, it brings certainty to the volumes and certainty to the pricing in the future. That also will make it easier for us. So I think the single biggest factor, certainly for James Bay, for the Galaxy project, is if there is a partner out there that wants to come in and help us develop this by bringing certainty to the project while also bringing some capital today, that's probably the single biggest trigger that would help us reaccelerate that project again. But we also just have to be confident that the long-term fundamentals are going to be in a place that justify it.
Steve Richardson
Makes sense. I wonder if I could just follow up and ask Gilberto on cash, the reconciliation. Can you just walk us through kind of ending cash at June 30th and appreciate, I think you indicated that back at CapEx will be similar to what we saw in the second quarter, at least quarterly. So if you could hazard a guess what you think ending cash would look like at the $12 kilogram kind of scenario outlook, I think that would be helpful as well.
Dan
Yeah, so for the second half, as we said, we expect a similar CapEx spending and we do not expect the same level of on-time costs that we got faced at the beginning of the year. Some of them related to commercial price adjustments and also related to integration and merger costs. So that will be a relief for versus the second half. So naturally we will not have what I call a cash burn in the second half of the year in any close magnitude that we had in the first half of the year. So again, I would, without giving any specific target number for you or a number, you should clearly assume that we will not be spending the same level for the first half of the year. I would say 200 to $300 million less than that for sure.
Paul
Your next question comes from a line of DecoBomb. Andy Cowan, your line is open.
Andy Cowan
Thanks Paul, Gilberto, team, thanks for taking my questions. Gilberto, maybe if you could just expand and clarify on that last point you made, it sounded like I was curious on the totality of 500 million reductions, if we should be expecting a capital program next year on the order of 300 million while your volumes are still guided to expands by 25%, just given, I guess, Phoenix 1B commissioning. So it seems like in that scenario, if I'm following your $12 a kilo EBITDA guidance, you shouldn't have an incremental cash burn in 25, even amidst the lower environment. And it seems like that is sort of like the base absolute level for capex in 26 as well.
Dan
Yeah, I think you're right, David, that in 25 you're gonna see the bigger portion of this $500 billion savings taking place. No question about that. And I think you're right in your math. I think that based on the $12 price, and again, we have, again, I don't want to go sight that we have all the contract volumes going to 2025, that they might not necessarily have the same price of this year. So don't assume that we might even have a better prices for next year above market price that we have today. So, but yes, I think that 300 is a relatively good number, but clearly the biggest savings that we're gonna have on this $500 million will be taking place in
Paul
2025. David, I just want to clarify that and make sure you're clear on that point that Shobeta just made with regard to prices next year. We don't have any prices for next year that are lower this year than this year in the contracts. We actually have more volume going into those contracts next year too, as the contracts naturally grow. And these will take or pay. All other things being equal, we want to sell more volume under those contract prices next year. Now, we of course add 25% more volume, so it's a little bit more complicated to model than that, but I don't want you to read into any of this, but there's a risk to those contract prices being lower next year because there is.
Andy Cowan
No, yeah, no, I know that we're dealing with back of the envelope math right now, but it seemed like on the cocktail napkin, you should at least be in a strong fundamental picture next year. My follow up if I might, yeah, sorry, go ahead, Paul.
Paul
No, no, I was just gonna reiterate the point. I think you're right. Most of the capital savings are 2025 savings, first half of 2016, more than half of that 500 million reduction in capital spending will be visible next year.
Andy Cowan
That's good to hear. And perhaps, I guess, just pivoting a little bit harder here is just on the lithium metal side with the recent acquisition. And obviously, I know you have a lot of evicts in the portfolio, so now you have, it seems like two emergent solutions around converting products into different, or different products into lithium metal. I'm curious from your view, and you talk about, you gave us our macro view, when do you see lithium metal being a material source of commercial activity for Arcadium?
Paul
The Senate came and said, a big chunk of our business today is lithium metal based. It just happens to be lithium and other specialties. So don't forget, we have a pretty large internal demand for lithium metal and just so people recall, we've historically either told lithium chloride in China or converted to ourselves. We do make lithium chloride ourselves. Lithium chloride based processes are not the most pleasant processes to run. And from a responsible operations and a safety and an environmental perspective, we've been looking for a way to bring more metal production in house, but not using the chloride based process. And so this acquisition is really all about securing more supply for our existing business. If you ask me, when do I think lithium metal will be a big piece of the energy storage business? I think we're probably five, six, seven years away from it being a major part of the business. It requires, I think, some evolution in solid state technologies or semi-solid state technologies and a broadening of the applications that are being deployed too. When it takes off, it'll take off pretty quickly, but we've been saying for a while, not meaning to before 2030, and I'm not thinking haven't really changed yet.
Paul
Your next question comes from the line of Glenn Lockock of Baron Joy. Your line is open.
Glenn Lockock
Good afternoon, Paul. Just a couple of quick ones. Just firstly, you've obviously got your CAPEX guidance that you gave us a quarter ago, which was basically, I think, about 1.6 over the next three years. So is that the 500 just comes off that? And then obviously with the slowdown and everything we're seeing in the market, excuse me, everything we're seeing in the market, is it fair to say that the CAPEX numbers will get an update on individual project CAPEX, which is likely to increase at the strategy day next month?
Paul
You will get an update at the strategy day next month. I don't know whether the numbers are gonna be higher. There's certainly will be probably some slightly different nuances. As you know, slowing the project down doesn't make them cheaper typically. But I think the numbers that we have out there for CAPEX really reflect our latest estimates on an aggregate basis for the project. So you may be surprised on a project by project basis, but it'll add up to the same number, I would guess, at the season today.
Glenn Lockock
Okay, thanks. And then just quickly, Mount Catlin, I mean, obviously $700 cost base, I assume that's US. With the add-in freight, the quality adjustment, is it worth keeping it open? Is that something you're actually considering is putting it on care and maintenance?
Paul
Mount Catlin is a difficult one, right? Because in Q2, it definitely makes sense to keep operating it. The latest prices we see for the spot concentrate are 30% lower than they were in Q2. You're touching $700 or so per ton for spodumene right now. It clearly does not make sense to operate anywhere, Mount Catlin or anywhere else, if your cash cost is 700 and you know at Mount Catlin, putting capital into it to get ready for the next phase of mining as we're stripping as we go. The question of care and maintenance, it's gotta be active in these market conditions, absolutely. And you can imagine we're asking those questions pretty intensively internally about, is that the right strategy for Mount Catlin right now? I don't want to react to just one or two price points that come out of China for spot concentrate, but if it looks clear that we're in a period of spodumene prices that are three digits and not four digits, then I think the whole care and maintenance question becomes much more acute.
Paul
Your next question comes from the line of Alexey Yefremov of Qbank. Your line is open.
Alexey Yefremov
Thanks, good morning. Sorry, good afternoon. Gilberto, I was hoping you could maybe provide that I suppose an idea of how you envision a sort of two finance, whatever capital program is going to happen for the rest of this year and next year. What should we expect to happen on the balance sheet and capsule statement? I mean, if you can provide us with any specific numbers, that would be great, but if not, maybe just sources of capital would be helpful as well.
Dan
Yes, so I think the source of funding will continue to be operating cash flow. As I said, initially the call, we won't have as much cash requirements in the second half as we had in the first half of the year, as I already mentioned. So, and we're gonna be continuing to generate a lot of operating cash flow. And again, we're adding more volumes in the second half of the year, which will drive more operating cash flow. Next year, we also added another 25% versus this year of volume. We will continue to drive more operating cash flow. We remain untapped on our $500 billion credit facility. So we can always access that as well. So as of this time, we were not expecting to do, we will continue to monitor the market and how we continue to evolve, but the plan is to be self-funded, our capex. And again, this is related to reduce the capex investments we have by $500 million in the next 24 months. And I'll just add, we are also going to be looking in further cost savings and reductions that will also help us from a cash perspective as well.
Alexey Yefremov
So self-funded meaning you do not anticipate needing the revolver.
Dan
No, I do anticipate using the revolver. I mentioned that,
Alexey Yefremov
yes. Okay, thank you for clarification. And then Paul, I think you made fairly specific comments about pricing already, but this is such an important point. I was hoping to clarify. The next year, if, let's say scenario where market indices do not change, you do not expect Arcadian's realized prices to change as well and serve just to stay in a similar premium position as they are today.
Paul
Yeah, look, if we have prices staying where they are for all of next year, the average price will be lower. Why? Because the proportion of prices that are under our contracts becomes low. While the absolute tonnage goes up, so does the number of the tonnage that we sell into spot markets as well. So it's gonna be slightly lower than we have achieved in the first half of this year, but there's no scenario where it's, because the market price is 12. We're not gonna average 12. It's almost mathematically impossible for our average price to go to the market based on what we see today.
Paul
Your next question comes from line of Robert Stein of Macquarie. Your line is open.
Robert Stein
Hi Paul, thanks for the opportunity. Just a question on downside scenario. So if pricing were lower than 12, we still expecting a non-linear projection on EBITDA towards the range. So if it was 10, say, we're not essentially drawing a straight line between the two. I think we asked the question at the last quarterly and the range is between 15 and 25. And it kind of got fobbed off a little bit, but obviously we are where we are today. So it'd just be helpful to understand the resilience under a price scenario that's lower than the lower end of the range.
Paul
Yeah, but the 15 to 25 range we gave last time and even the 12 to 15 now, 12 to 15, whichever, wherever you are, once you get down to that, it's below the flow prices that we have in our contracts, which is why it's not linear when it moves, because you've got a chunk of it that just doesn't change. The price of 15, 12, 10, five, a piece of that pricing just doesn't change because the flow prices are in place. Once you get above the flow prices, so on the way up, it does become perfectly linear and you can then deal with it that way, but we're not really that close to getting above those flow prices. So I don't think it's gonna fob off your question last time. I was just trying to explain that it's just not, it sort of depends, the flow prices are between the first, the range we gave last time, 15 to 25, it was harder to answer that question because the flow price sits somewhere between those two prices. But if you're going 15 to 12 or 12 to 10, the flow price doesn't come into play. So it's linear on the additional volumes, but you've still got to account for the fact that a big chunk of volumes are at a set flow price under these scenarios that we've put out there.
Robert Stein
Yeah, okay. And I guess another sort of contracting market related question, can you help me, can you help us think through how the, I guess volume commitments may change into the future should a downside scenario emerge? So if I understand your contracting strategy correctly, you engage with downstream parties, you get commitment volumes, you arrange flow pricing that sort of underpins returns or attractive to your growth. So are we essentially seeing a slow down because we're just not getting the bidder interest for your contracts at pricing that underpins attractive expansions, i.e. where from a capital allocation point of view, we can expect you to generate positive to free cashflow generation in lieu of firm test demand up until when that firm demand re-emerges. I guess your question's really trying to understand how your downstream customers are interacting with you around their projected demand profiles and is there any risk to future growth scenarios out past this year?
Paul
It's an interesting world we find ourselves in. So the customers that we have today continue to view, we may be overstating it. I mean, maybe it's just us and we're better than we are, but customers tend to treat us like a partner in their supply chain come and go. So they don't just come to us and say, I want product. They're trying to work with us to try and figure out which part of the supply chain it makes sense for our team to be in, for example, with battery technology, which capital producers, which cell producers. And so we work with them about where it makes most sense for our materials to go. And they're also looking for flexibility from us, particularly as they think about different technologies between hydroxide and carbonate. And so they're actually spending more and more time qualifying more and more of our materials so that they have as much flexibility to take product from across our network. And so the single biggest differentiator that we're finding today is our ability to A, have multiple sources of supply, multiple locations, multiple geographies, multiple products. And this is really important to actually get to the qualification processes into their supply chains. All of this means that the existing customers that we have today are all very keen to expand their relationship with us. In most cases, that means they've got a product offering, broader qualification, and pretty much all of them, slowly increasing volume commitments on their part and on our part as we look into the future. Now, if the question is, are we adding more and more customers like that? In these market conditions, no. I think most of those customers, and this is not because the price is low and so they don't feel they need to, they're also trying to figure out their supply chains too and who they want their partners to be and what material they need and how important's the IRA and how much is going to be LFP or mid-nickel and so on and so forth. So this is what I mentioned in the script about sort of the technology flux and the lack of visibility. It's more difficult today to bring in a potential customer to the table to engage with you and put in place a long-term supply agreement. That doesn't mean that they're not all talking to us or that they don't want to do this. They're just frankly just not ready, not in a place yet, that they feel they can make those additional commitments. And it's why in the next two to three years, we will quite likely have more material being sold not under these contracts and will be truly purely market exposed. The contracts we have, none of them expire in the next three or four years. So they're not going anywhere. But today at least, I don't have a roadmap to adding a ton more customer contracts in the next six to 12 months.
Paul
Your next question comes from Milena F. Pavel Molchanov of Raymond James. Your line is open.
Raymond James
Thanks for taking the question. How soon do you anticipate re-evaluating your capital spending plans and what do you need to see to take that next step?
Paul
So it's interesting. We have a couple of projects that actually have a degree of momentum behind them that I wouldn't say makes them inevitable to keep moving them forward, but it would take a lot for us to stop them either because of commitments we've made to contractors and construction or commitments we've made to customers and other partners. So I don't see us changing those. I think when it comes to the other two projects that we're gonna put on hold, and I say put on hold, it is on hold. It's not perpetual. We do expect to restart them. As I said, rather than doing four projects at once, we expect to do two at once. So as we finish construction and bring online a big project in Canada, in Namaskar, we can then move on to start and change day. And the same is true in Argentina. As we finish one of the two on Brimuerto projects, we can move on to the other one. We clearly will revisit that second step depending on what market conditions are between now and then. We've got 16, 18 months probably to have to make that decision. So I don't expect a big revisit in the next 16 to 18 months, but it will absolutely be front and center in our minds as we move through 2025, what conditions are we on in and do the market justifies starting those two projects?
Raymond James
Okay, following up on that, why is Namaskar kind of protected from the QAPEX reductions in other areas of the business?
Paul
Yeah, look, I wouldn't say it's protected. It's just that when you line them up and you look at the economics of the project, we think the Namaskar project is unusual. Nothing's unique, but it's certainly unusual in our industry. Being a non-Chinese, fully integrated hydroxide plant, it has a fantastic environmental footprint with the hydroelectric power that it uses. It's quite well advanced, quite a long way advanced, particularly the mine, but also even the Wrecking Corp Chemical Plant. And some of you guys will see the chemical plant when we do the invest today and we head up there. It's also frankly backed by a customer who's provided both capital and a contract that incentivizes both of us to bring that plant online on schedule. And so it has a bunch of characteristics to it. Also the fact that while it's a big project, 50% owned by somebody else, so we're only responsible for half the capital. So it also has a near term cash demand profile that's more favorable as well.
Paul
Your next question comes from line with Joel Jackson of BMO Capital Markets. Your line is open.
Joel Jackson
Hey, good afternoon. Maybe following up on the MASCA, so one of your major competitors is talking about over the last week that the shift to the West never happened. Conversion assets in Australia don't make money, they lose money, they're not competitive China. Even you guys in the Raha, taking a long time to ramp up outside of China. We all know what's happening in Australia with conversion, it's a long question, sorry. I mean, think of the MASCA, does it make sense at Beckincourt to do conversion? Does it make sense just to be a spodumene merchant mine there or feature other network? I mean,
Raha
are
Joel Jackson
you worried that conversion is a negative margin component? Definitely not
Paul
where it is a negative margin component. I mean, you gotta bear in mind the nature of the way we structured that plant, particularly with customer contracts. We have a lot of confidence that that is gonna be, that it has pricing available to it that generates acceptable returns. You know, it's kind of interesting, we've asked ourselves this question, I don't think that being a merchant of spodumene out of Canada into China is a particularly attractive model for many people. It's incredibly volatile, it's a long shipping distance. Mining in Canada is not as easy as people think it is. A lot of challenges with permits, et cetera. So, you know, I don't know that being a merchant to a spodumene concentrate from Canada into China, and that is the only home for it. It's something that we would have taken on today if that's where we sat. And frankly, it's part of the challenge that James Bay has when we assess it. But I also think that the hydro-oxide plant that we're building there at Beckencourt, I suspect, well, I don't suspect, I'm pretty confident that if we started that project from scratch today, it would be more expensive to build starting today than it's going to be for us. Just the passage of time, cost of material going up, et cetera. And it is, you know, look, we'll talk a lot about this on the invest today, but I will be you about what regional demand, what the ex-China world looks like, what that demand looks like. There is absolutely going to be a shortage of supply of lithium hydroxide that doesn't touch China. Whether that's important for IRA purposes or whether it's important for broad resilience of supply chain purposes, we do think that even though that market's not going to be, you know, 600,000 ton a year market, it's certainly plenty big enough to absorb the 32,000 tons that Beckencourt will produce. So, you know, when you think about it that way, think about it as part of a network, think about how far advanced it is, think about the partner that we have, the low-cost hydro, maybe Beckencourt's not the best representation of what an ex-China downstream conversion plant looks like economically. I certainly do not believe that generally speaking, today, building a North American conversion plant in most locations without significant government help will make sense. Economically, it is unlikely to make sense.
Joel Jackson
Okay, another big picture question, another like big picture question. I think it's the lithium industry, obviously evolving quickly, but there's a lot of irrational behavior going on, right? So we talk about the petrolyte producers that are definitely producing, you know, below cost. Excuse me, the pricing are below their cost, but hey, a lot of that's downstream integrated, so who cares? You've got African spodumene ramping up, the grades aren't great, concerns who's gonna take it, but we'll see. SQM can't really stop pumping brine out because of the unique complexities of their arrangements there with quota, Delco, yourselves 25% increase, I believe in LCE for next year, Almal's taking a bit of conversion off the market. No one's stopping really to produce more and more and more. So Paul, what's gonna give?
Paul
That is a big picture question, Joel. Look, you know, I think I've said to a bunch of you, I don't consider the African spod or the Lepidlyte to be irrational. I think it might be economically irrational, but it's not irrational when you view it from other perspectives, particularly security supply chain. We've spoken about this a bunch of times, I think, you and I, about why I think it makes sense for them to do that. I think though, you know, if you go back a few years, go back to like 18 and 19, the hydroxide market was high, pricing was pretty good, and then all of a sudden somebody brought on a new hydroxide plant and the price collapsed. Why? Because the market was only under the 50, 140,000 tons a year, so one plant can make a difference. If you look at what happened going into this year, into 2024, best we can estimate all of the lithium demand growth that happened between 23 and 2024 on an LCE basis, it was about 20,000 tons of growth, and the hydro was needed, it was all satisfied by this unexpected wall of the piddleite and African spodumene. And so what happened is there was no volume, no demand growth for everybody else, right? It was a flat market for the rest of us. It was blindsided, I was blindsided, much of the market. But a lot of the investments that are bringing volume on today were made prior to this, right? And you can't stop them. You've been around a lot enough to know once a project is underway, it's underway, and stopping it can be really expensive and destructive. And so there's a tendency to finish what started. And so what also happens is our reaction time as an industry is not quick, just isn't. It takes us a while to react. And we get helped for sure just by the fundamental growth patterns that we see. I mean, despite everybody's fears of flowing demand, just the EV pool alone, as I just said, on a gigawatt-hour basis, which is the best proxy we have for lithium demand, 20% growth year over year from the first half of 2023 to the first half of 2024. And this is before we factor in some of the growth in grid storage and station and storage demand that's really coming up quickly. So what needs to happen is this cycle needs to play out and we need to get into the next cycle. There will be a natural tightening of supply and demand just from demand growth and the inability of the last big growth driver, the pitalite and African spodumene, fill that gap. So it will sort itself out. It just is gonna take a few quarters to get there. I would love to be able to tell you that a whole bunch of people will stop producing, but the truth is, if you run five, six, seven different assets, maybe you can do that on one of your assets, but this industry continues to be populated by single asset companies. Single asset resource companies cannot afford to stop production or massively retail production. And so they'll hold on and hold on and hold on for longer than is rational. So yeah, there's a lot going on in this industry still. It's still rapidly changing on both the supply and the demand side. And it just takes time for situations like this to work through.
Paul
Your next question comes from the line of Hugo Nicolacci of Goldman Sachs. Your line is open.
Hugo Nicolacci
Morning, Paul Givero and Tim. Thanks for the update. Just one on the projects and fields. Hearing from some of your peers in Argentina that they potentially lost up to 50 days of construction this year alone due to weather impacts, mainly wind in the region. What level of disruption have you seen at Phoenix and Selda Vida this year so far before the deferral? And how much buffer have you built into the timelines that you've now restated on those projects, I think?
Paul
Yeah, we've not seen any delays on construction from weather or anything else. We've seen some delays on startup of Phoenix 1A, which were caused by factors outside our control, basically infrastructure, masses that were controlled by suppliers that they weren't able to fulfill their obligation, but sort of a one-off unique issue that we have that's now resolved. But we've seen none in there at all. As for putting buffers in there, I mean, you can imagine that schedule does not end on 31st of March, or we tell you guys what we've done on the 1st of April. We do put some buffers in there with regard to the normal delays that we have. Is it gonna be enough? I think given where our Argentina projects are, Selda Vida especially, I mean, they're not three years away from completion. I mean, Selda Vida's just over 15, 16 months away from completion. So, and it's quite well advanced, over 40, 45% complete so far. I'd be surprised if we have major delays at Selda Vida as a result of any outside factor.
Hugo Nicolacci
Hey, great, thanks, Paul. And then just a second one, just around you highlighted that you expect to fill the recently expanded conversion facilities when you have that volume from Argentina. Given that all the rise feeds in our harbor, otherwise that volume is controlled by TTC, that largely then leaves you reliant on the Phoenix and then Selda Vida projects, unless you look to third party purchases. Even with those current next legs of expansions already in construction, does that give you enough carbonate volume to fill those? And if it did, do you actually expect that to be economic given the current pricing or would you sell spots carbonate instead?
Paul
So you raise a way more complex topic than I can probably do justice to in a soundbite type answer, but let me just say that the volumes that are in partnership with TTC, they are available to us to use in our broader network. They actually make a lot of sense to go into the hydroxide network because they are not battery-grade material and as I'm sure you can imagine, TTC's objectives, they have many, but some of them are to support their partners in Japan. Their partners in Japan don't need technical carbonate, any battery-grade carbonate or lithium hydroxide. So we are very aligned with TTC about the best way to optimize the value of the carbonate that comes out of all the rows. So unfortunately, the premise of your question that that material won't be available is unlikely to be true.
Paul
Your next question comes to the line of Kevin McCarthy of Vertical Research Partners. Your line is open.
Raha
Yes, thank you and good evening. Paul, last quarter I think you indicated that about two-thirds of your hydroxide volumes are covered by contracts or fixed floors. My question would be how does that two-thirds ratio change if it changes at all in the back half of this year and into 2025, recognizing that you're targeting 25% volume growth?
Paul
Yeah, so it clearly goes down later this year because the volumes that we have coming on are not under those contracts. So back end of this year as the, because all the volume under those contracts has been served today. So adding more volume is not going into those contracts. We do though have contract expansion next year. So some of that volume will in fact then move into supporting growth in contracted volumes that are already in place. So the ratio next year will be slightly lower than two-thirds but not massively lower than two-thirds. And again, as the year goes on, don't forget because the nature of the volume we add and they sort of ramp up as the year goes on. It's not a linear day one in 2025 with 25% more volume starting January the 1st. So as the year goes on slowly but surely the ratio will start to shift to lower the contracted volumes in 2020-2025.
Raha
Okay, that's helpful. And then secondly, maybe more of a clarification question around what has changed with regards to your project suite. I think I understand what you said about Galaxy. I did want to clarify however, exactly how you're re-phasing in Argentina. If I look at the bottom of slide seven, you showed 25 kilosomes there with a part one in early 26 and a part two in late 27. Can you parse that out in terms of how much is coming on in early 26 versus 18 months following that and
Paul
what
Raha
exactly has changed with those volumes please?
Paul
Yeah, we'll touch on this more in the investor day but originally all of it would have come on in early 2026. These two projects are roughly give or take the same size. So in essence, half of it will come on in early 26 and the other half will come on in 27. So instead of 25,000 times all coming on in early 26, it's between 10 and 15 will come on in early 2026 and the other 10 to 15 will come on in late
Paul
27. We've run out of time for questions. This concludes our Q&A session. We'll now turn the conference back over to Dan Rosen for closing remarks.
Operator
Great, that's all the time we have for the call today but we'll be available on how to address any different questions you may have. Thanks everyone.
Paul
This concludes the Arcadium Lithium Second Quarter 2024 earnings release conference call. Thank you.
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