Arcadium Lithium plc

Chief Financial Officer. The slide 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 Jambretta will be available to address your questions. Given the number of participants on the call today, we will 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 annum share, 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 call over to Paul.

Thank you, Dan. Arcadium Lithium reported strong results in the quarter, despite market conditions remaining challenging. and lifting 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 terms of 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 by combined hydroxide and carbonate volumes in the second quarter, with Arbuta Lithium and other specialties products achieving a price per LCE 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 Oloroso 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 socket processes, means that we expect 25% volume growth again in 2025 from these already completed expansions, giving 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 at the merger. As a reminder, we previously announced that we expect to achieve total cost synergies 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. Arcadium lithium's expansion projects are forecast to be among 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 imbalanced. 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.

Thank you, Paul. Starting with slide four, Arcadia Lithium reported second quarter revenue of $255 million, adjusted EBITDA of $99 million, and adjusted earnings of $0.05 per diluted share. Total volumes in the second quarter were up slightly versus the first quarter, with higher carbonate and hydroxide sales partially offset by lower spodumene sales due to reduced production at Mount Catholic. 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 lagged impact of price indices on a portion of our carbonate and hydroxide volumes, and changes in both product and customer mix. Adjusted EBITDA margins were positively impacted by lower operating costs, while partially offset by some negative FX impacts. As a result, the company achieved an adjusted EBITDA margin of 39%, demonstrating our leading low-cost position in Argentina power of our business in these challenging market conditions. Turning to slide five, we provide further detail on second quarter and year-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 product ton 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 quarter over quarter, this is higher than would have been achieved had we pursued 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 butyl 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 spodumene, we sold roughly 23,500 dry metric tons in the quarter from Mount Kaplan, at an average grade of 5.3%. Volumes were slightly lower, consistent with a 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 at Mount Kaplan remains at approximately $700 for tons due to reduced mining activity. I will now turn the call back to Paul.

Thanks, Gilberto. I'd like to provide some market observations on flight 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 this 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 PHEV sales were 20% higher year over year in the first half of this year. Underlying 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 highs. Additionally, demand growth for 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 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 this supply growth has come in the form of spodumene out of Africa and lapidolite in China, which is much higher cost than most existing supplies. 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 non-integrated spodumene concentrate and lithium chemicals has not been growing at the same rate in recent years. 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 supply 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 and 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. because there's 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 cash flow or are being developed by companies without a proven track record of success. We also do not believe that lapidolite or African spodumene volumes can continue to expand at 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 at 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're currently exploring 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 Hombre Muerto in Argentina, between Phoenix Phase 1B, Sala Vida Stage 1. These projects are also industry leading, with forecasted operating costs firmly in the first quartile for 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 Hambre and Huerta complex, where the two projects sit 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 Namaska Lithium, the 32,000 metric ton integrated spodumeter 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 in two of 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 Arcadian 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 feedstock. This complements the lithium chloride-fed process, from our operations in Argentina that we use 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 Millennium 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 detail regarding these plans in the coming months. With respect to our recently completed capacity expansion, 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 for full year 2024, with the volume growth coming predominantly 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 producing at full 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 production at Oloroso Stage 2 is producing lithium carbonate, but 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 towards name plate production levels later in 2025. 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 Nara, Japan, are all finalizing qualification to key customers. They are expected to increase commercial volumes as soon as the lithium carbonate production in Argentina increases . I will now turn the call back to Gilberto to discuss our updated fall year 2024 outlook.

Thanks, Paul. Turning to slide nine, you will see our updated 2024 volume rule translating to sales expectations by major products. Combined hydroxide and carbonate sales are now expected to increase by 7,000 to 12,000 metric tons, or 25% higher than 23 on an LC 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 2023. 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 our current lithium 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-based benefit to us that you will see shortly in our scenario outlooks. We have also slightly lowered our projected spodum in sales for 2024 as a result in second half sales volumes be fairly similar to the first half. On slide 10, I want to provide some commentary on our outlook for other financial items. We have made no adjustments to our full year outlook for SG&A or diluted share count, inclusive of 67.7 million diluted shares from treatment of the convertible nodes outstanding. With respect to DNA, we lower 2024 outlook by $45 million. This is due to a combination of slower expected ramp-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%. This 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 $550 to $700 million. We expect quality cadence in the second half of the year to be more in line with the second quarter spend. On slide 11, 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 Arcadia Lithium for the full year. 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, while overlaying existing commercial agreements as applicable. This scenario should not be interpreted as a forecast by Arcadia 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 per LCE on its market-based volumes, the business remains highly resilient, supported by our quality and low-cost production assets, while offering significant upside to the price we found in fact day to day.

Back to you, Paul. Thanks, Roberto. So to wrap up quickly before taking any questions, I just want to reiterate the strong performance of Arcadian Lithium. 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 price environment 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.

Great. Thank you, Paul. JL, you may now begin the Q&A session.

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. Your first question comes from the line of Steve Richardson of Evercore ISI. Your line is open.

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, 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 re-accelerate. 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 worth in price.

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 investor is going to generate a return are dependent on the price, the price has to be high enough, right? Period. Does that mean a short-term spot price increase? Is that enough to convince me? Probably not. I think understanding what's going on in the market, seeing 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 case-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 re-accelerate that project again. But we also just have to be confident that the long-term fundamentals are going to be in a place that justifies

TAB, Mark McIntyre, makes sense, I wonder if I could just follow up and as Gilberto. TAB, Mark McIntyre, On cash the reconciliation can just walk us through kind of ending cash at June 30 and. TAB, Mark McIntyre, appreciate it, thank you, you indicated the backup capex will be similar to what we saw in the second quarter and these quarterly So if you could have any 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.

Yeah. So we for the second half, as we said, we expect a similar spending and we do not expect the same level of on time costs that we have 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. to $200 million to $300 million less than that for sure.

Your next question comes from the line of Dekelbaum of D. Cowan. Your line is open.

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%, you know, 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 as sort of like the base absolute level for CapEx in 26 as well?

Yeah, I think you're right, David, that in 25, you're going to 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 cite 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 better prices for next year above market price that we have today. But yes, I think that 300 is a relatively good number, but clearly the biggest savings that we're going to have on this $500 million will be taking place in 2025.

Yeah, but I just want to clarify that and make sure you're clear on the point that Gilberto 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 all take our pay. All other things being equal, we sell more volume under those contract prices next year. We, of course, add more. 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. There's a risk to those contract prices being lower next year because of this.

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.

No, no. I was just going to reiterate the point. I think you're right. Most of the capital savings of 2020, like five savings, first half of 26, but more than half of that 500 million reduction in capital spending will be visible next year.

That's good to hear. And perhaps, I guess, just pivoting a little bit harder here, just on the lithium metal side, with the recent acquisition, and obviously, I know you have a lot of VIX in the portfolio, so now you have, you know, it seems like two emergent solutions around the converting product into different or different product into lithium metal. I'm curious from your view, I mean, you talk about, you gave us our macro view. When do you see lithium metal being a material source of commercial activity for Arcadium?

You know, the Seneca says, you know, a big chunk of our business today is lithium metal based. It just happens to contribute to lithium and other specialties. So don't forget, we have a pretty large internal demand for lithium metal and just so people 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. looking for a way to bring more metal production in-house, but not using the chloride-based processes. 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 still 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 technology. in solid-state technologies or semi-solid-state technologies and a broadening of the applications they're being deployed to. When it takes off, it'll take off pretty quickly, but we've been saying for a while, not meaning to before 2030, and that hasn't really changed yet.

Your next question comes from the line of Glyn Lockock of . Your line is open.

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?

You will get an update at the strategy day next month. I don't know whether the numbers are going to be higher. There 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, of the seasons today.

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, you know, putting it on care and maintenance?

Mount Catlin is a difficult one, right? Because in Q2, it definitely made sense to keep operating there. The latest prices we see for spot concentrate are 30% lower than they were in Q2. touching $700 or so per ton for spodumene right now. It clearly does not make sense to operate anywhere, Mount Carlin or anywhere else, if your cash costs are $700. And you know about Mount Carlin, we're 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 got to be asked in these market conditions, absolutely. And I can imagine we're asking those questions pretty intensively internally about, is that the right strategy for Mount Carlin right now? I don't want to react to just know one or two price points that come out of china for spot constant right but if it looks clear that we're in a period of spodumene prices that are you know three digits and not four digits then i think the whole care maintenance question becomes much more acute your next question comes from the line of alexey yefremov of q bank your line is open

uh thanks good morning uh sorry good afternoon uh gilberto i was hoping you could maybe provide us with 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 what should we expect to happen on on the balance sheet and capital statement i mean if you can provide us with any specific numbers that would be great but if not maybe just sources of uh capital would be helpful as well

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 of cash requirements in the second half as we had in the first half of the year, as I already mentioned. So we're going to 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. We will continue to drive more operating cash flow. You know, we remain untapped on our $500 billion credit facility. So we can always access that as well. So as of this time, you know, 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're also going to be looking in further cost savings and reductions that will also help us from a cash perspective as well.

So self-funded, meaning you do not anticipate needing the revolver?

No, I do anticipate using the revolver. I mentioned that, yes.

Okay. Thank you for clarification. And then, Paul, just. I think you made fairly specific comments about price already, but since it's such an important point, I was hoping to clarify. So next year, if, let's say, it's an area where market indices do not change, you do not expect Arcadians' realized prices to change as well and sort of just stay in a similar premium position as they are today?

Yeah, look, if we have... If we have prices staying where they are for next year, the average price will be lower. Why? Because the proportion of prices that are under our contracts becomes lower. While the absolute tonnage goes up, so does the tonnage that we sell into spot markets as well. So it's going to be slightly lower than we have achieved in the first half of this year, but there's no scenario where it's the market price is 12 we're not going to average 12. it's almost mathematically impossible for which price to go to the market um based on what we see today your next question comes from line of robert stein of macquarie your line is open hi paul and okay thanks for the opportunity just a question on downside scenario so if pricing

were lower than 12. Are 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, in the ranges between 15 and 25. And it kind of got fobbed off a little bit, but obviously we are where we are today. So just be helpful to understand the resilience under a price scenario that's lower than the lower end of the range.

Yeah, look, you know, the 15 to 25 range we gave last time and even 12 to 15 now, 12 to 15, exactly wherever you are, once you get down to that, it's below the floor 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. If the price goes $15, $12, $10, $5, a piece of that pricing just doesn't change because the floor prices are in place. Once you get above the floor prices, so on the way up, it does become perfectly linear. You can then deal with it that way, but we're not really that close to getting above those floor prices. So I don't think it's going to pop off your question last time. I was just trying to explain that it's just not, it sort of depends, you know, the flow prices are between the first, you know, 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

um at a set to all place under under these scenarios that we've put out there yeah okay um and and i guess another um 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 um should i should a downside scenario emerge so um if I understand your contracting strategy correctly, you engage with downstream parties, you get commitment volumes, you arrange floor pricing that sort of underpins returns that are attractive for your growth. So are we essentially seeing a slowdown because we're just not getting the bidder interest for your contracts at pricing that underpins attractive expansions, i.e. from a capital allocation point of view, we can expect you to generate positive free cash flow generation in lieu of firm cash demand up until when that firm demand re-emerges. I guess the 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?

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. So they don't just come to us and say, I want a product. They're trying to work with us to try and figure out which part of the supply chain it makes sense for Arcadium to be in for example with battery technology which Kappa produces which cell produces and so we work with them about where it makes more 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, 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 a broader product offering, broader qualification, and for 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 is the IRA and which 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 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.

Your next question comes from one of Pavel Molchanov of Raymond James. Your line is open.

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?

So it's interesting. We have a couple of projects that actually have a degree of momentum behind them that I wouldn't say make them 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 going to 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 Damascus, we can then move on to start in James Bay. And the same is true in Argentina. As we finish one of the two hombre muerto projects, we can move on to do 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 that we are in and do the markets justify us starting those two projects.

Okay, following up on that, why is Namaska kind of protected from the QAPEX reductions in other areas of the business?

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 that a master 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-admatched, quite a long way advanced, particularly the mine, but also even the wet and cold chemical plant. Some of you guys will see the chemical plant when we do the investor day 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% are 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.

Your next question comes from the mind of Joel Jackson of BMO Capital Markets. Your line is open.

Hey, good afternoon. Maybe following up in Damascus. So one of your major competitors, you know, is talking about over the last week that, you know, the shift to the West never happened. Conversion assets in Australia don't make money. They lose money. They're not competitive in China. You know, even you guys in the Raha and 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, thinking of the MASCA, does it make sense at Beckencourt to do conversion? Does it make sense just to be a spodumene merchant mine there or feed your other network? I mean, are you worried that conversion is a negative margin component?

Definitely not worried it's a negative margin component. I mean, you've got to bear in mind the nature of the way we've structured that with customers. that is going to 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, Phil. I don't think that being a merchant to a spot in and 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. You know, I don't know that being a merchant of spodumene concentrate from Canada into China, and that is the only home for it, is 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 hydroxide 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 our view 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 IOA 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 a 600,000 ton a year market, it's certainly plenty big enough to absorb the 32 000 tons that beck and core will produce so you know when you think about it that way think about it as part of a network think about the you know how far advanced it is think about the partner that we have the low-cost hydro maybe that can cause 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 okay another big picture question i know like big picture questions um because the lithium industry obviously evolving quickly but there's a lot of irrational behavior going on right so we talk about lipidolite producers are definitely producing below cost. 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 going to 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, yourself, 25% increase, I believe, in LCE for next year. Albemarle'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 going to give?

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 spot or the lapid light to be irrational. I think it might be economically irrational, but it's not irrational when you view it from a other perspectives particularly security supply chain and 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 150 140 000 tons a year so one plant can make a If you look at what happened going into this year, into 2024, the best we can estimate all of the lithium demand growth that happened between 23 and 2024 on an LCE basis. It was a couple of hundred thousand tons of extra demand was needed. It was all satisfied by this unexpected wall of lapidolite and African spodumene. And so what happened is there was no volume, no demand growth for everybody else. It was a flat market for the rest of us. It was blindsided, out of the market. But a lot of the investments that are bringing volume on today were made prior to this. And you can't stop them. You've been around enough to know once a project is underway, it's underway. And stopping it can be really expensive and disruptive. And so there's a tendency to finish what you started. And so what also happens is our reaction time as an industry is not quick. It 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 slowing demand, just the EV pool alone, as I just said, on a gigawatt-hour basis, which is the best property 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 stationary storage demand that's really coming up quickly. know 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 lapidolite and african spodumene fill that gap so it will sort itself out it just is going to take it's going to 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 You know, 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 curtail 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.

Your next question comes from the line of Hugo Nicolacci of Goldman Sachs. Your line is open.

Good morning, Paul. Thanks for the update. Just one on the projects themselves. Hearing from some of your peers in Argentina that they potentially lost up to 60 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 Celta Vida this year so far before the deferral? How much buffer have you built into the timelines that you've now restated on those projects? Thanks.

Yeah, we've not seen any delays on construction from weather or anything else. We've seen some delays on startup of B1A, which were caused by factors outside our control, basically infrastructure matters that were controlled by suppliers that they weren't able to fulfill their obligation, but sort of a one-off unique issue that we had 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 when 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 going to be enough? I think given where our Argentina projects are, Saldo Vida especially, they're not three years away from completion. Saldo Vida is 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 had major delays at Saldo Vida as a result of any outside factor.

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 Olaroz feeds Naraha, but otherwise that volume is controlled by TTC, that largely then leaves you relying on the Fenix and Seldavida 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 spot carbonate instead?

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-grade carbonate, they need battery-grade carbonate or So we are very aligned with TTC about the best way to optimize the value of the carbonate that comes out of ROs. So, unfortunately, the premise of your question that that material won't be available is unlikely to be true.

Your next question comes from the line of Kevin McCarthy of Vertical Research Partners. Your line is open.

Yes, thank you, and good evening. Paul, last quarter, I think you indicated that about two-thirds of your hydroxide volumes were covered by contracts with 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?

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, 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 volumes we add them, they sort of ramp up as the year goes on. It's not a linear day one in 2025 with 25% more volumes 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.

Okay, that's helpful. And then secondly, maybe more of a clarification question around what has changed with regard to your project suite. I think I understand what you said about Galaxy. I did want to clarify, however, exactly how you're resaving in Argentina. If I look at the bottom of slide seven, you showed 25 kilosons 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 what exactly has changed with those volumes?

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 2026 and the other half will come on in 2027. So instead of $25,000 coming on in early 2026, It's, you know, between 10 and 15, I'll come on in early 2026, and the other 10 to 15, I'll come on in late 2027.

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.

Great. That's all the time we have for the call today, but we'll be available on the call to address any additional questions you may have. Thanks, everyone.

This concludes the Arcadium Lithium second quarter 2024 earnings release conference call. Thank you.