Lithium Americas (Argentina) Corp. Common Shares

earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and one. I would now like to turn the call over to Kelly O'Brien, Vice President of Investor Relations and ESG. You may begin.

Thank you, Bailey. I want to welcome everyone to our earnings conference call this morning. Joining me on the call today to discuss the second quarter results is Sam Pigott, President and CEO of Lithium Argentina. Alex Shogo, Vice President and CFO will also be available during the Q&A session. Before we begin, I would like to cover a few items. Our press release with second quarter 2024 results were issued last evening and the corresponding documents are available on our website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, Gomfeng's strategic investment in Plastos Grandes, the timing of our projects and market conditions, may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our MD&A and news release that was filed last night. I will now turn the call over to Sam.

Thank you, Kelly, and thank you, everyone, for joining us today. Since our last earnings call, we have remained focused on our strategic efforts, supporting a successful ramp-up at Kachari Oloraz, ensuring that the company remains sufficiently capitalized, and advancing our long-term growth plans with our partner, Genseng. I'll begin with an update on the ramp-up at Kachari Oloraz. As mentioned in the earnings release last night, we are very pleased with the progress being made and remain on track to achieve 2024 guidance. During the second quarter, production volumes reached approximately 5,600 tons of lithium carbonate, an increase of 24% compared to the first quarter of this year. And we have achieved monthly production records in each of the past three months. Production is now being sustained at around 70% of design capacity, and we have been able to surpass these production levels, achieving close to design capacity for limited periods of time. The focus is now on maintaining these higher production levels near design capacity. Last night, we also provided further insights into our current pricing formula for the sale of lithium carbonate from Kachari-Oloraz and additional financial information on the project. We are working to find the right balance between increased disclosure to the market as we manage the variability typical in a new operation undergoing a ramp up. We realize periodic or backward looking information during a ramp up may not always give an accurate picture with significant changes often month over month or within a quarter. Once the operation reaches commercial production, expected later this year, we intend to provide increased disclosure and additional financial metrics on the project. While the current market conditions remain challenging, Kachari Olaroz remains well-positioned, with minimal capital requirements ongoing and positive operating cash flow adjusted for working capital tied to the ramp-up of production. Even in the current pricing environment, we expect to remain operating cash flow positive, with costs continuing to decline and better realized pricing as quality continues to improve. At the close of the second quarter, Lithium Argentina had $96 million in cash before completing the $70 million Pasos Grandes transaction, which is expected to close imminently following receipt of Chinese regulatory approvals. Proceeds from this transaction are expected to strengthen Lithium Argentina's balance sheet, including using a portion of the proceeds to reduce debt at the project level. Along those same lines, in May, working with Ganfeng, we successfully secured an $80 million bank credit facility for the project to replace existing short-term debt with more flexible long-term financing. Finally, we continue to carefully advance our regional development plans for Pasos Grandes Basin and Stage 2 expansion at Kachari, Focus today remains on completing the ramp-up, but we remain cautiously optimistic following the recently passed RIGI incentive bill in Argentina that includes an attractive investment framework and important clarity on FX regulations to support our longer-term growth plans. I have officially been part of the Lithium Argentina team for five months now, and while there is still a long road ahead, I am increasingly confident in the ramp-up of Kachari Old Road, supported by the right team in Argentina and partnership with Genseng. As the project reaches steady state, we see Kachari Oleras providing a powerful platform for long-term growth in Argentina. With that, I'll now open the floor to questions. Thank you.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. Your first question comes from the line of Ben Isaacson with Scotiabank. Your line is open.

Hi, Sam, Kelly. This is Aparva on Prevent. Congrats on the quarter. My first question is, I'm just taking a look at your off-take agreements for the last, I think, 3.8 thousand tons of Phase I production that's yet to be committed. Is the plan to get these out the door through an additional off-take, or are you considering marketing them yourselves and potentially selling them at spot?

Thanks for the question. So, at this point, we plan to retain this uncommitted share. of offtake. This gives us flexibility longer term as well as the uncommitted offtake on stage two. But during the ramp up, even though we haven't committed this portion to anything, I think at this point we expect to sell that product through Gannfine.

Gotcha. Thank you. And then my next question, you mentioned the debt profile of the operating company at XR. Given some of the Given the plan to use some of those proceeds from the Pastors Ground-based Transaction towards reducing leverage, can you give any color on what other or the scope of the refinancing that we might see, potentially what those terms look like at a high level? Are they still favorable?

Yeah. We're open to all credit facilities, so in May we secured an export credit facility for $80 million. We expect that type of facility, which is accounted for in the overall debt on XR, we expect that to be able to roll. We expect to use a portion of the proceeds from the PG co-transaction to delever XR significantly. And then we're also working with Gantank to pursue longer-term financing options to take advantage of the improved financing conditions in Argentina. And an example of that would include evaluating a local bond offering in Argentina, which could allow us to take advantage of improved lending conditions there.

All right.

Thanks for the call.

Thank you.

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

Morning, Sam and team. Sam, just a first quick question. When you said in the press release last night, you know, assuming the current market dynamic continues, you know, the lithium price commentary, and that you would be operating cash for positive excluding capital changes, right? What do you think is the current operating environment for pricing? What were you referring to exactly? What levels?

So, I mean, we look at the battery grade price in China.

So $11,000? Yeah. Okay.

So, you know, the pricing across the first half of the year was higher than that. And depending on assumptions you would make on what your actual sales volume was for the JV, you were making maybe, the JV is making maybe $1,000, $2,000 a ton of profit, right, at first half pricing. We know that spot pricing is lower. Can you comment on that? I mean, it would seem like you're a very razor-thin margins here at spot prices at XR.

Yeah, I mean, the expectation for since the beginning of the year, we've been running this business on very conservative assumptions around pricing. And that seems to be a very prudent thing given where the market is today. Our expectation through the back half of the year is as production volumes ramp, we expect cost decline. I think we've been very pleased with the trajectory of cost through the first half of the year and expect that trend to continue. And then in terms of the kind of realized pricing that we're receiving, we disclosed this pricing formula. which is a snapshot of where we are today, but we would expect that realized pricing to improve given that, you know, the trends on quality have improved and therefore the reprocessing cost comes down. So we're confident that, you know, in today's current pricing environment, we remain operating cash flow positive adjusted for working capital tied to the ramp up. we expect costs to continue to decline as volumes progress. And we expect the realized pricing relative to battery grade spot market pricing in China to improve as quality does.

Okay. That's helpful. And then, you know, I think you took down the plants, a lot of part of the circuits in April, sometime in the spring, right. To sort of fix it up, ramp it back up and focus on quality. Right. That's correct so far. Um, yeah. Yeah. Um, And then now that you've had a few more months on the re-ramp and after you did some fixes and some optimization, are you now as a team now at XR thinking about some changes to the design, changing maybe how the KCL plant works or other things like to try to, like are there some new ideas you guys have with three or four months more runtime that you want to implement and what would that look like if true?

Yeah, I mean the plant shut down in April was very effective. We've seen it in the last three months where we've kind of progressively hit higher and higher production volumes. Part of this ramp up is about learning how the plant operates at higher and higher production levels and being able to sustain them. I think there's a lot of optimization work that is ongoing. I wouldn't say that we're certainly not looking to change the design of the plant. I think we've been very pleasantly surprised by how it's been operating, but certainly tweaks and minor optimizations along the way are going to be necessary to kind of continue to ramp up, achieve higher levels of production, and then sustain them.

Just finally, it's a tougher question, and it kind of makes you look at the hat you wear now and the hat you wore recently, but we all know what's happened in lithium environments, and we're seeing a lot of different companies start to push off projects, curtail conversion plans, a lot of things happening in different regions of the world. You're obviously tied to Ganfeng in some of your future goals, you know, investing in the different basins in Argentina, your partner in XR, you know, their view on things would matter. Do you see, you know, a difference now in how some of your partners look at the market and how that might affect, you know, investment decisions by yourselves and them going forward?

I mean, the short answer is no. I think a bit more color on that is I think it's kind of heightened the focus on lower cost operating assets. So I would include high quality brine projects within that. So I think there's certainly been a bit of a redirection in market participants' strategic positioning around you know, which assets are developed. I think we're very fortunate to have a partner like Gansang that, you know, continues to, you know, invest through the bottom of these cycles. I think, you know, this industry is prone to these very aggressive, you know, bull and bear markets. The long-term outlook, I think, is what drives us and certainly what drives Gansang's investment decisions. But I think when we and they look at which projects should get developed, I think we're very pleased with the portfolio that we have today.

Thank you.

Your next question comes from the line of David Deckelbaum with TD Cohen. Your line is open.

Thanks for taking my questions, guys. And Sam, thanks for the time. I did want to ask if you could just kind of help us quantify as you're in like the final stages of ramping towards battery grade. Can you sort of refresh us on what your operating cost target is and, you know, sort of how meaningful you think some of these cost optimization, you know, endeavors are going to be with, you know, regards to lowering your operating costs, which, you know, still appears to be in sort of that $6,000 per ton type level?

I mean, I think the ultimate objective is to, you know, we expect costs once we reach steady state to be in line with some of our low cost producing peers in Argentina. You know, as we ramp up, obviously cost is largely a function of volumes. There's a high degree of fixed costs within our business. So getting volumes up towards the end of the year will be a major driver of that. And then into next year, there's going to be a lot of room to kind of optimize the business across numerous things, reagents for one being a big bucket of costs. I think we've seen a lot of great work led by Ganfeng and the team at MonerixR in terms of lowering specific consumption of reagents. And I think that trend will kind of continue next year once we reach steady state. Ultimately, this would be one of the lower cost projects certainly in South America and in line with our peers in Argentina.

I appreciate that. And then if I could just ask for a little bit more elaboration. I know in the comments you said that discussions around expansion of the 20,000 tons at Kachari continue to advance. Can you give a little bit of insight into what those discussions are right now? And I'm just curious, like, as you look to deliver at the XR level, is this a matter of conversations just within the existing XR, you know, kind of partnership? You know, or is there advancement in talks and thoughts of bringing in additional parties before considering expansion?

Yeah, I mean, so the development work both on stage two and the regional development plan is continuing. For the regional development plan, the ongoing work right now is really around technical collaboration on kind of pulling together the reserve and resource models, the hydrogeological models. And then we're obviously collaborating to explore the benefits of DLE technology to complement conventional solar evaporation processes. For the regional development plan specifically, Ganteng is leading this plan and is bringing a lot of expertise from their experience in Mariana and globally and within China. That combines with the early work studies that we're completing right now on the reserves and the hydrogeological models. I think we're trying to position this business. to be able to obviously support the ramp up, but also put us in a very strong position to capitalize on the opportunities for growth at the right time. Obviously, we will have more to say on these development plans, both the regional development plan and the expansion plan once those studies are complete, which in the case of the regional development plan, we'll have a lot more to say by the end of the year.

Appreciate the color.

Your next question comes from the line of Santos Cesedri with HSBC. Your line is open.

Yeah, hi. Thanks very much. So, firstly, when you increase the battery grade spec, increase towards the battery grade spec eventually, should we expect your average cost to go up or maybe stay flattish as it becomes incrementally difficult to bring down costs given the additional processing involved. And my second question here is, is Gangplank fulfilling its commitment levels in the current low-demand scenario where your peers are finding it difficult to sell their batteries back? Thank you.

Yeah, thanks for the question. I'll answer the second one first. Yes, Ganteng is continuing to take as much of the product as they can get. The second question is, there is a bit of a trade-off. So, obviously, as we reach near nameplate capacity on a sustained basis, we expect operating costs to fall. In order to get to battery quality product, there are a few additional steps that need to take place. These aren't material – I wouldn't classify them as material to the cost. So, the expectation is that producing battery material grade at steady state production should have a very immaterial increase to overall costs compared to producing the quality that we're producing today.

Thank you.

Just a follow-up on that. Do you think that incremental cost will be lower than the $2,000 discount that you're getting over?

Yes. Thank you.

Your next question comes from the line of Mohamed Sidibe with National Bank Financial. Your line is open.

Thanks, Sam and Tim, for taking my question. A bit of modeling questions here. Sam, should we assume that most of the production that you've had in the first half of 2024 was sold to Ganfeng, all of it? Or could you maybe help me reconcile the production and sales number here?

So, I mean, Ganfeng is entitled to 80% of offtake from the first 25,000 tons of production. The remainder is to Bangchek, which is a Thai oil and gas company. So, you know, Ganfeng is taking the vast majority of product today. In terms of reconciling kind of production and sales, they're obviously, as we're ramping up and increasing production levels, there is a bit of a lag between, you know, production and sales, so there's a bit of a mismatch there. We expect that mismatch to obviously normalize as we approach and sustain steady-state production towards the end of this year.

Great, thank you. My second question, you mentioned that you expect to reach commercial production by the end of the year. Can you qualify that? Is that the level of capacity? Is that reaching 90% capacity? Is that a specific amount going through the plant? Could you give me some color on that, please?

So, I mean, that's reaching higher, you know, higher production levels on a sustained basis over several months. Alex Shilga was on the call. I'm not sure if you want to step in and answer that question.

Yes, sure, Sam. It's an accounting area here. There are policies and there's an approach from accounting efforts and point how to define commercial production. There's several criteria that are being used. One is achieving certain level of capacity. The other one is being able to maintain that level of production of capacity for a prolonged period of time and quality of the product. So we are monitoring all this criteria. And when we feel that we met these requirements, the project will be considered commercial production, which will mean a start of depreciation of all fixed assets, including the processing plant. Currently, processing plant is not depreciated, as well as not discontinuation of capitalization of certain costs.

Thank you. And then my final question is on the liquidity front as it relates to the third-party loans at the Argentinian level. I know that you have about 200, on 100% basis, I'm calling this out here, 280 million that is due before June 30th, 2025. Could you give me some color on the cadence of that repayment? Would it be more weighted towards 2025 or is it fairly split across the next four quarters as you guys continue to advance your refinancing efforts? Alex, do you want to take that question?

Yeah, sure, absolutely. It is spread between the remainder of 2024 and 2025. We are actively working on refinancing this short-term debt, and we achieved a certain level of flexibility by replacing some of the short-term loans with more flexible bank, more traditional bank loans. So, yeah, it is spread between 24 and 25. And we do have, as I mentioned, some flexibility on timing of repayment. We are able to extend and roll some of the loans. As Sam mentioned, we secured an 80 million facility, which is expected to be rolled as well. So, yeah, I hope this addresses your question.

Yeah, that's pretty helpful. Thank you very much, guys.

Your next question comes from the line of Corinne Blanchard with Deutsche Bank. Your line is open.

Hey, thanks for the question. This is actually . First of all, congrats on the 70% capacity. My question relates more to pricing. Can you talk about the discount, the $2,000 discount per ton and how you expect that to evolve in future quarters and years?

Yep. So the current $2,000 processing fee is a reflection of the cost incurred by Ganfeng in China to to remove trace levels and impurities and sell into the battery-grade market. We're constantly reviewing quality, and it's gradually improving, so we expect that processing fee to narrow between now and certainly the end of the year. The expectation, of course, is once we exit the year towards nameplate capacity on a sustained prioritize quality, and once we achieve battery-grade spec as the plant is designed, that adjustment will no longer be required.

Okay. Thank you. Very helpful. And then the other question I have is related to Mineral XR. On the 100 percent level, there was a $113 million loss related to the fair value of derivatives. Can you help us give a little more context around that, please? and then how you expect it to evolve moving forward?

Sure. Maybe I'll turn that one to Alex.

Yeah, sure, Sam. This fair value loss relates to intercompany funding by shareholders to MinerXR and represents unrealized non-cash foreign exchange loss and the loans from shareholders, like in Gangfeng, to the project. Loans were provided at the market for an exchange rate, generating foreign exchange gain at the time of grant. Loans are denominated in USD at market, USD, PESA exchange rate. So changes in the market exchange rate in Argentina may result in unrealized gains or losses. Like for example, in Q2, as you mentioned, market exchange rate of PESA devalued over 40% generating a loss over 113 million. At the same time, if you look back at last year, 2023, we recognized a gain of over 250 million. So it is fluctuating, you know, foreign exchange situation in Argentina is dynamic. Unfortunately, we cannot predict how it develops, but yeah, we can see some some fluctuation from quarter to quarter. As I mentioned, this is on intercompany loans from shareholders.

Okay, that's very helpful. Thank you.

And your next question comes from Shannon Gill with Cormark Securities. Your line is open.

Hey, guys. Thanks very much for taking the question. Just to follow on to Joel's question here, I just wanted to know how we can interpret the availability of the KCL plant going forward. Is this something somewhat more of like constant rates at lower volumes on one of the trains, or is it going to be more choppy with breaks for tweaking or optimizing the processing more? Can we expect more pauses like the one in April to come? Yeah, if you could get some color on that, that would be great.

Sure, yeah. I mean, the KCL is, as you know, one of the last plants that we committed, still on ramp up. We've now operated both trains simultaneously. And I think running both trains at full production will be kind of critical, obviously, to removing trace levels and impurities and kind of reaching our offtake spec sheet. Right now, we have no expected meaningful downtime to reorient or optimize. Again, we are obviously in a ramp up. I think we've done a great job so far in terms of achieving approximately 70% capacity. But as we push to higher levels and try and sustain them, there could be the need to... need to shut down for a couple days in order to kind of fix all these bottlenecks in terms of reaching nameplate capacity. But right now, we don't see anything that would indicate that that would be needed.

Okay, great. So the biggest one, I guess, in Q2 would have been the April one, but no meaningful downtime between then and the end. Got it. Okay, thanks so much.

Yep. There are no further questions at this time. I will turn the call back over to Kelly O'Brien for closing remarks.

Thank you, everyone, for joining the call this morning. We look forward to reconvening next quarter and remind you that we are available, all of us, to help answer any questions or concerns before then. Thank you. Have a good day. This does conclude today's conference.

You may now disconnect.