Lithium Americas (Argentina) Corp. Common Shares

ladies and gentlemen thank you for standing by my name is Abby and I will be your conference operator today at this time I would like to welcome everyone to the lithium Argentina third quarter 2024 earnings call all lines have been placed on mute to prevent any background noise and after the speaker's remarks there will be a question and answer session if you would like to ask a question during that time simply press the star key followed by the number one on your telephone keypad If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Kelly O'Brien, Vice President, Investor Relations, and ESG. You may begin.

Thank you, Abby. I want to welcome everyone to our earnings conference call this morning. Joining me on the call to discuss the third quarter results is Sam Piggott, President and CEO. Alex Shogo, VP and CFO will also be available during the Q&A session. Before we begin, I would like to cover a few items. Our third quarter earnings press release was issued last evening, and the corresponding documents are available on our company website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, Gonteng's strategic investment in Pastos 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.

Thanks, Kelly. Good morning, everyone, and thank you for joining us today. We appreciate your interest in our company and your ongoing support as we progress Cachari-Olaraz and navigate the evolving landscape of the lithium market. We are cautiously optimistic on the future of lithium, particularly as we assess market conditions, our operational capabilities, and positive changes we are seeing in Argentina. Last night, we published our third quarter results, and we're pleased to announce that during the third quarter, Kachari Oloraz produced approximately 6,800 tons of lithium carbonate, a 21% increase from the second quarter of the year. The plant is currently operating at 75% to 80% of nameplate capacity, and while we expect this level to be maintained into 2025, we are confident that we will be able to reach 40,000 tons in the future. Given production year-to-date and targets for the fourth quarter, we are well-positioned to meet our production guidance of 20,000 to 25,000 tons of lithium carbonate this year. As mentioned in the earnings release last night, the additional processing cost to achieve battery-quality lithium carbonate has been reduced from $2,000 to $1,500 per ton. While this change had a positive impact on margins, market prices of lithium continued to see downward pressure during the third quarter. The most recent realized prices for Kachari Gold or Oz fell to approximately $7,000 per ton following the decline in lithium prices. Looking forward, we continue to work closely with our partner, Ganfang, to determine the optimal product mix and quality to address the evolving needs of lithium battery customers and to maximize our overall operating margin. We expect to provide clarity on our 2025 production plans and product quality targets early in the new year. We are pleased with the work being done to advance Stage 2 at Kachari-Olaroz in the Regional Development Plan around Pasos Grandes Basin in Salta Province. The work on the Regional Development Plan is ongoing and should be completed in the coming months. We believe that the newly passed RIGI regime will provide a number of very attractive fiscal incentives to support large-scale investments in the country and will help support the development of our comprehensive growth pipeline. We expect to release more information related to the Regional Development Plan in early 2025. In closing, we remain optimistic about our strategic positioning in the lithium market and the long-term demand driven by the ongoing energy transition. Our operations in Argentina continue to demonstrate strong production capabilities, and we are committed to enhancing our efficiency and sustainability practices. As we move forward, we believe our investments in technology and partnerships will further solidify our role as a key player in the global supply chain. We look forward to updating you on our progress in the coming quarters. And with that, We'll open the floor to questions.

Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Again, it is star one if you would like to join the queue. And your first question comes from the line of Ben Isaacson with Scotiabank. Your line is open.

Good morning, everyone. Thanks for taking my question. This is Aparva on for Ben. So my question is that in prior quarters, you've disclosed that Kachar would be cash flow positive even at current spot levels um you mentioned that both spot prices have come down as have uh some of your additional processing costs so is this still the case or will kachari still be cash flow positive except working capital at spot thanks for the question so during the third quarter we were operating cash flow when adjusted for working capital

As you point out and we pointed out in our press release, prices have declined. There is about an 18% decline from the second quarter averaged carbonate price to the third quarter. Most recent realized sales price from XR was about 7,000. I would say that while the prices have declined, we've also seen costs come down as we reach higher levels of production and also aim to optimize operations. So for the fourth quarter, we expect to be around break-even at close to current prices. We're working with Ganfeng on our production plan for next year, as well as additional disclosures on costs, and we'll have that available for investors early in the new year.

Understood. Thank you. And my kind of follow-up question, at what point in 2025 are you folks expecting production levels to increase meaningfully? I know you mentioned you're still kind of having those conversations with Ganfeng, but are there challenges still in sustaining that quality at the higher production levels right now?

No, I think we're genuinely pleased with how volumes have progressed throughout this year. So currently at 75% to 80%, you know, what we've said is that we expect to exit the year around those run rates and into early 2025. Again, we are working with Ganfeng on the production plan for next year, and we'll have that available to all investors early in the new year.

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

Hey, good morning, Sam and Tim. Just maybe the first question on pricing. So you got about $8,000 per ton for this quarter, and then you mentioned 7,000. I suppose that's what you saw in October. Can you just give a little bit more detail? Because I think the average price in China was about $10,500 since early October. Is that the plan that you are referencing minus the VAT and minus the $1,500 for the impurities? Or how should we think about that?

No, that's correct. So the China price, the reference price that most people see in China is inclusive of VAT. So that needs to be stripped out as well as the additional processing fee.

Okay. And then on the processing fee, like...

do you think like should we model out further like you know that or is there like a good uh chin that maybe you know you drop to like you know the the one thousand through 2025. uh i mean i think it's something that we're we're evaluating uh just in terms of how the the qualities progress like obviously this year the focus has very much been on volumes and there we've you know i think we've we've certainly achieved our expectations. And so as quality becomes more focused next year, certainly we'll kind of continue to update the market and investors on what that means in terms of our realized pricing. I think carrying on through the rest of the year using 1500 is probably the right number to use. But going into next year, when we come out with our production guidance on volumes, we're also going to come out with guidance on product mix.

Okay, that makes sense. Maybe just as a follow-up, can you talk about the Converse and what you're thinking about doing with them? It's a big topic of conversation with investors, so I just wanted to get clarity on this.

Sure. I mean, for us, you know, the focus is really on the Kachari stage one and refinancing XR short-term debt. You know, I think that the convert it's due in January, 2027 has a very attractive interest rate of 1.75%. So we're, we're, we're in contact with the convert holders and, you know, we're, we're very confident we'll be able to refinance, um, when the time is right, but, uh, certainly close, closer to maturity. I don't know, Alex, um, if you have anything further to add on that point.

No, I think you hit the response here. I think at the current interest rates, 1.75% looks very attractive. We feel confident we'll be able to refinance this, but we don't want to jump ahead and you know, we will deal with this when we are kind of closer to its maturity. We still have a little less than two years. You know, we'll focus on this, you know, next year.

Okay, great. Thank you.

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

Good morning, everyone. Look at your financials and XR's financials. Looks like you ended the quarter around $90 million of cash, the JV around $14 million. You put in $65 million to JV across the quarter. If we're kind of breakeven here, can you talk about what are you thinking about for your cash needs, the JV's cash needs, and if you've got to maybe think about getting some buffer or cushion in the near future?

Sure.

We've brought down XR's debt level to approximately $200 million. And we are actively engaged, along with Ganfeng, on replacing that with longer-term debt. So I think from the joint venture level, I think we're in a very good position. I'd say at the project, where prices are today, and we've kind of taken the look, there's some improved sentiment in China. But we're really building this business and planning for this business based on lower for longer pricing. And what we're seeing today is this business does not draw a lot of capital to sustain operating needs. And I think that's going to be continually supported by what we're seeing in terms of where operating costs are headed. So I think we're in a very strong position today, not just from what we've been able to achieve de-levering the joint venture and efforts to kind of term out some of the short-term debt there. I think Black's cash balance is, you know, sustained in a healthy position today. And in terms of what we see needing to support this business under a lower for longer scenario, you know, we have no immediate needs to kind of buffer, create a buffer.

Okay, and then

Can you help us, Sam, with some sensitivity around cost? So if the JV can do 25,000 tons, 30,000 tons, 35,000 tons, 40,000 tons, you know, over time, how might cost scale down? Is it just simply linear? Is it better than linear? Can you give us a bit of mall markers and granularity and how to think about it?

I mean, certainly volumes help. they don't tell the entire story. You know, as we've carried on advancing this operation, hitting higher production levels, once we reach a more steady state of production, there are going to be ways to optimize our cost structure in Argentina. And so you can take kind of two obvious buckets of costs, one kind of reagents, so price and specific consumption. So price times volume. And I think, you know, as, as we, we better understand the plan, it's operating more consistently. I think we'll be able to, uh, you know, improve certainly in terms of the specific consumption. And then the other bucket of costs is labor. Uh, and certainly there will be, um, areas to kind of improve our cost structure there. And it's really just a function of kind of getting into the steady state operation. So it's a combination of both.

Thank you.

And your next question comes from the line of David Deckelbaum with TD Cowan. Your line is open.

Thanks for taking my question, Sam, and for the update today. I'm hoping that maybe as you look into next year, given in the context that we're expecting this regional development plan update, what should investors expect to learn from that update? And I guess put it in the context of how you're thinking about Lithium Argentina's capital needs for next year once you're at the point now where Qatari phase one is relatively ramping towards capacity, but how much incremental sort of capital calls will there be for next year?

I mean, I think we understand very well that the market conditions today are putting a lot of focus on companies' balance sheets. Our approach from the beginning has been to advance our two attractive growth plans, the regional development plan, as well as kind of doing some preparation work around a potential expansion without spending much money. And so the regional development plan really benefits from a tremendous amount of work, money, and resources that went into both a feasibility study on Paso Grande and then obviously Ganfeng. spent a lot of time and money developing Pesuelos, these assets will all be put into a regional development plan. We certainly are cognizant of being able to advance these projects only when there is a rationale that benefits our shareholders. And so today, really, the focus is getting this plan advanced, finalized, delivering it to the markets, I think what it will show is a new way to think about how to incorporate new technologies that enhance recoveries and improve kind of the environmental impact. In terms of the financing strategy, listen, I think we're very aligned with shareholders here. We obviously don't want to overexpose ourselves to capital commitments that the current market wouldn't support.

I appreciate that and helpful color. And then just as a follow-up, just on the clarification on next year and sort of thinking about running at 80% of capacity, you know, as we go into 25. You talked about product mix elections with your partner, Gangfang. How do we think about that evolving over time? I mean, are you seeing that there is a greater desire to kind of produce a technical grade longer term versus the original plan for you know, for the sake of efficiency? Or is it more a case of, is there more desire on Gangpeng's part for you to be producing technical quantities for a longer period of time?

I think it's in part just a reflection of how dynamic the market is. You know, specifications for certain segments of the battery market have tightened considerably, I would say. and and so it's just look you know looking at our operations and trying to optimize them to maximize the the operating margin so that is you know potentially producing a you know a product at a lower cost better efficiencies and really just a trade-off calculation um kachari overalls was designed to produce you know a battery grade spec um that that will that will continue to be a potential target, but we're really working with Ganfeng to just ensure that we're optimizing the margin of the project. And so I'd say one further comment is like, you know, both shareholders are very much aligned in maximizing margin. I don't think this is not a scenario where Ganfeng is telling us to produce a certain product and we're going ahead with it. You know, ultimately, this is a project that will produce a product that can either be sold into China or outside of China. And so that's the long-term view. And we'll have more to disclose around product mix with the production plan and guidance for 2025 early in the next year.

Appreciate that, Sam. Thank you.

And your next question comes from the line of Seth Goldstein with Morningstar. Your line is open.

Good morning. Thanks for taking my question. I wanted to follow up on an earlier question and ask about Qatari phase two. What price makes sense to move forward? You said it could be a pretty low incremental investment, but how are you thinking about that in relation to prices?

Yeah, I just say on Qatari, obviously the focus is stage one. We do have a separate team there working on phase two planning. I think part of that is obviously evaluating some advances that particularly GenFang has made around processing technology that can build off of what we've been able to demonstrate around stage one in terms of enhancing recoveries, lowering the environmental impact. pushing the go button and advancing that plan. First, we have to finalize the plan. Second, I think we have to be able to assess where we are in the market, look at what the existing cash flow from Kachari is, evaluate our financing options that would be available to support that growth, and then ensure, obviously, it integrates well into the RIGI program in Argentina. So I think that's

That's how I'll leave that answer for now.

Okay, fair enough. And then in order to take the $1,500 extra processing fee down significantly to 1,500, even eventually zero, would you need to make a material additional investment to improve the quality, or is that, would it be not as much incremental capex?

I mean, at this point, we have not identified the need for material incremental capex. Partly, it's a function of getting to more steady-state production. That will deliver two things. One, it'll allow us to hone in on the impurities that are currently outside of the acceptable spec sheet. The other big part, of course, of maintaining more steady-state production is the variability within those impurities will be much easier to manage. So it's something that we're evaluating. Obviously, this year, the focus is very much on production volumes. At the same time, we have seen improvements that's been reflected in this lower reprocessing or additional processing cost in China. So it's really something that we continue to monitor and going into next year, The focus will, as we've said before, pivot towards quality, but at this point, we don't see material investment associated with quality improvements.

Okay, great. Thanks for taking my question.

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

Good morning, guys, and thanks for taking my question. First question would be just on the quarter-over-quarter increase in production. Sam, could you give us maybe some color on that increase? Was it, Brian, well availability? Was it on grade? Was it on recovery? Any color would be appreciated.

I mean, I think it's a function of the team knowing how to operate the plant better. improving uptime, reliability. You know, it's a large plant, somewhat complex, a lot of moving pieces. And so, you know, it's natural that it takes the team some time to understand how it operates. You know, the user manuals are one thing, operating it in real time is another. And so I think that's been a large contributor to the increase in production. I'd say going forward, that will probably remain the case. It's about pushing into higher production levels and being able to sustain them. Maintenance is a big thing, identifying preventative maintenance, being able to identify things before they break or risk creating any downtime. So I think that that's been kind of the most broad and significant contributor to the production levels increasing.

Okay, great. Thank you. And then just a follow-up question on the cost front. You mentioned that, of course, as volume increases, that would benefit COGS, but that you would look to optimize COGS either on reagents and labor. Can you remind us of what percentage of your costs are coming from labor and reagents, if possible?

I don't know, Alex, if you have rough numbers along those lines.

So, yeah, I think reagents would be the most substantial part of our costs. But, you know, there is some kind of variability as the plant is kind of ramping up. I don't think we, you know, we're ready to provide you kind of a guidance and sort of those percentages. That will come out next year as we provide full guidance. I just wanted to say, I guess if you refer to our technical report, they would give you an idea of those percentages. So, reagents would be kind of said before the percentage or so. But again, you know, it depends on the level of production. I think we'll be in a better position to provide this outlook, you know, early next year with our guidance.

Sounds good. Thank you. And just my final question, Sam, if I may. Just on the GM lockup that expired in October, do you have any color on that or have you had any conversation with them in terms of their ownership?

Yeah, I mean, we've maintained a dialogue with GM since the separation. Yeah, I mean, the lockup is no longer in place. I think GM has, as you probably all know, been fairly focused on increasing their investments with Lithium Americas and Sacropass, but we have a good ongoing dialogue. I don't think we're in a position to speculate as to how they view their shares in Lithium Argentina from a strategic perspective, but we certainly have an ongoing and open dialogue with GM.

And ladies and gentlemen, that concludes our question and answer session, and this will conclude today's call. We thank you for your participation, and you may now disconnect.