Livent Corporation

Good evening, and welcome to the fourth quarter 2020 earnings release conference call for LiveIn Corporation. Phone lines will be placed on listen-only mode throughout the conference. After the speaker's presentation, there will be a question and answer period. I will now turn the conference over to Mr. Daniel Rosen, investor relations and strategy for LiveIn Corporation. Mr. Rosen, you may begin.

Thank you, Rob. Good evening, everyone, and welcome to Lavin's fourth quarter 2020 earnings call. Joining me today are Paul Grades, President and Chief Executive Officer, and Gilberto Antoniazzi, Chief Financial Officer. The slide presentation that accompanies our results, along with our earnings release, can be found in the investor relations section of our website. The prepared remarks from today's discussion will be made available after the call. Following our prepared remarks, Paul and Gilberto will be available to address your questions. we would ask that any questions be limited to two per caller. We would 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 release and in our 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, definitions of these terms, as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP provided on our investor relations website. And with that, I'll turn the call over to Paul.

Thank you, Dan. Good evening, everyone. Before I begin, it's been a year now since we first started having to adapt our operations and practices as a result of COVID-19. And there's no doubt it's had a major impact on Liven and its employees at many levels. So once again, I would like to take a moment to thank all of our employees globally for the way they've adapted their routines and practices, both personally and professionally. to ensure that we keep operating safely in this environment and can continue to meet our customers' needs. These challenges are not easy, and we truly appreciate your commitment and efforts. We have a number of important topics to discuss today, including what we saw in our fourth quarter relative to the rest of 2020 and what it might mean for 2021, the recent positive signs seen in the lithium market and how we expect them to evolve, Our outlook for 2021, both for Livent specifically and for the industry as a whole, and a discussion of how we see 2022 and beyond unfolding. But first, I'd like to highlight the announcement we made today regarding our supply agreement with BMW Group. This is a multi-year agreement under which Livent will deliver both lithium hydroxide and lithium carbonate for use in the batteries that will power BMW's electric vehicle fleet. Livens has already begun delivering material for qualification and commercial volumes will commence in 2022. Multi-year, multi-product agreements with premier OEMs such as the BMW Group are a core part of Livens' business model. We believe that they reflect Livens' position as a global leader in the lithium industry with a differentiated product offering, a proven track record and a unique sustainability profile. We also believe that the operational flexibility that allows Livent to deliver multiple lithium products from and to various geographic locations is an important focus for our global customers as they look to build more resiliency into their supply chains in an increasingly complex world. I'd also like to quickly address our recent announcements regarding sustainability. Last week, Livent announced its new sustainability goals as we are five years ahead of scheduling reaching almost all of our previous targets. These new goals were not set in isolation, but in fact reflect the highest priorities of Liven's customers, communities, investors, employees, and other stakeholders, based on extensive and ongoing dialogue we have with all of these groups on this topic. The goals are highlighted by a commitment to carbon neutrality by 2040, with significant carbon intensity reductions across our global operations much sooner than that. They include a path to 100% renewable energy use and a focus of our R&D efforts on supporting new and improved green technologies, processes and products. Additionally, they support an ongoing focus on sustainable water use with a commitment to further water intensity reductions and continued monitoring and disclosure. And of course, we will maintain our focus on uplifting communities and advancing social progress and human rights across our operations and in our own supply chain. We will be sharing further details in our sustainability report to be released later this year and look forward to providing updates on our progress on an annual basis using leading ESG reporting frameworks. Additionally, in the coming weeks, we will be publishing our first allocation and impact report under the green bond framework we established as part of our green convertible issuance in the second quarter of last year. While ambitious, we believe our sustainability goals are both achievable and necessary. And we believe that we have the credibility to set these new goals and be a leader in the process of setting standards that our entire industry is held accountable to. This is something our current and potential customers truly value and are demanding from their own suppliers. Increasingly and appropriately, there is a growing focus in the battery material supply chains on greater transparency from all parties, increased standardization of methodologies and data reporting, and requirements for independent verification of data and disclosure methodologies. Livent has begun the certification process for its operations in Argentina under the Initiative for Responsible Mining Assurance, or IRMA, starting with a self-assessment and progressing to independent third-party verification against stringent and comprehensive standards for mined materials. IRMA provides a credible solution for the growing demand for more socially and environmentally responsible mining standards. Many of the leading automotive OEMs, including BMW, Mercedes, and most recently Ford, have now publicly announced their intention to accelerate the adoption of the EARN standard across their supply chains. And we expect similar demands to spread throughout the energy storage supply chain over time. I'll now turn the call over to Gilberto to discuss our Q4 and 2020 financial results and 2021 outlook.

Thank you, Paul, and good evening, everyone. On slide five, we discussed LIVEN's Q4 financial results and our sequential improvements. In the fourth quarter of 2020, we reported revenue of $82 million, adjusted EBITDA of $6 million, and two cents adjusted loss for diluted share. Revenue increased 13% sequentially, driven by higher volume sold and better average realized pricing. As previously discussed, we expected volumes to be higher in the fourth quarter across our lithium products due to earlier customer order push-outs due to COVID-19 related to disruption and uncertainty. Profitability also improved from the prior quarter due to higher prices and lower costs from reduced third-party carbonate usage. Although this was partially offset by a nearly $3 million impact from the pause of lithium hydroxide production at our Bessemer City facility in North Carolina for two months. The upgrades that we undertook to meet increasingly tighter specification requirements from our customers were implemented successfully, and we are currently back up and running at pre-upgrade volumes. For the full year 2020, we reported revenue of $288 million. adjusted EBITDA of $22 million, and $0.05 adjusted loss per diluted share. The year-over-year declines were due to a combination of lower volumes, lower average pricing, and higher costs resulted from third-party carbonate usage, lower volumes produced, and increased spending in order to implement the necessary COVID-19 safety protocols at all of our operating sites. Our total lithium hydroxide sales volumes were lower in 2020 by roughly 2,000 metric tons. And we sold limited carbonate volumes. We also carried 4,000 tons of hydroxide inventory. largely produced from third-party source carbonate into 2020 to meet higher expected customer demand. While much of this higher cost material has now been worked through, we are carrying a slightly higher amount of inventory between hydroxide and carbonate into 2021, largely due to COVID-19 related demand disruption. Average pricing on an LC basis across the portfolio was down 18% in 2020 year over year. This was in line with our initial expectations heading into the year, despite lithium market price largely being lower than expected. And it's a reflection of Leiden's typical contracting terms, which set prices on an annual basis. We ended the year with $114 million in total capital spending, $22 million was for general maintenance, and we expect the spending to remain at similar levels moving forward. The remaining $92 million went towards growth investments. This was primarily related to our expansions in Argentina and Bessemer City prior to the decision in March to suspend construction work. Moving now to our 2021 outlook on slide six, where we have provided revenue guidance range of $335 to $365 million, and an adjusted EBITDA range of $40 to $60 million, both of which are meaningful improvement versus 2020. With respect to volumes, we do not expect to have any additional capacity available this year. However, we do expect to produce an additional 2,000 tons of carbonate in Argentina compared to 2020 due to the volumes lost last year from COVID-related shutdowns. Additionally, we have over 4,000 tons of combined carbonate and hydroxide inventory that we're carrying forward and expect to sell in 2021. Although we saw the beginning of an improvement in published prices at the end of 2020 and into 2021, particularly lithium carbonate, we are still expecting LiDEN's average pricing across its lithium products to be slightly down on our year-over-year basis in 2021. This reflects the pricing terms already agreed to for 2021 on a large portion of outstanding contracts. which were mostly executed in the latter part of 2020. There is also a lag on the portion of livened contracts that incorporate periodic market link price adjustments, which means that price changes seen in the second half of 2020 will impact our realized pricing on those contracts in the first half of 2021. And finally, given the nature of livened qualified product sales, Some of most notable moves in published market prices, while directionally important, are not a true reflection of realized pricing in our core markets, as can be seen when looking at the average realized prices in 2020 compared to the sum of the reported prices at that time. While we do have some upside to 2021 earnings from higher prices, we do not have any additional volumes available to sell. meaning that upside is primarily price-related. Even here, this is largely limited to the second half of the year and only on a portion of our contract volumes, as Paul will explain in more detail. From a cost standpoint, in addition to lower third-party carbonate usage, Liven expects to benefit from lower general operating costs due to a steadier and less disrupted running of its global manufacturing network. Lastly, Leiden continues to evaluate the potential timing and scope of the restart of its capital expansion plans, while also working diligently through the shorter-term practical constraints in Argentina as a result of COVID-19-related restrictions. With that, I will turn the call back to Paul.

Thank you, Beto. Before discussing market conditions in further detail, I want to expand on some of Gilberto's comments with respect to the impact of prices on our 2021 outlook. As many of you know, Livent seeks to contract as much of its volumes as possible on an annual basis. This is critical as it allows us to manage our production and supply chains more efficiently and helps us to justify the cost and complexity of qualification processes. In addition, we have historically looked to contract with annual fixed pricing, and not have large parts of our contracted volumes exposed to entry-year price movements based on indices or quarterly or even monthly renegotiations. For 2021, the bulk of our contracted volumes are on this same basis with firm volume and price commitments. However, compared to prior years, we have a larger portion of our contracted volumes subject to price adjustment during the year. Some of this is subject to index-based price adjustments, which will mean that prices are adjusted on a formulaic basis relative to reported price indices. Given these indices are published on a lagging basis, it typically takes a quarter or two for movements in reference to indices to impact our realized prices. In addition, we have also elected to enter into some volumes that are subject to monthly or quarterly renegotiation of prices, primarily relating to the second half of the year. This was done intentionally on our part, allowing us the opportunity to take advantage of any price increases. We don't see any evidence that this represents a meaningful shift in customer contracting preferences, which continue to vary and evolve as this industry undergoes rapid transition. We still have many customers that want price certainty over constantly changing lithium prices. However, we were not willing to commit volumes at price levels seen late last year, prices that we viewed at the time and today as fundamentally unsustainable. Moving on to slide seven, I'd like to provide some additional context to the recent industry dynamics we've seen play out in lithium and the broader electric vehicle supply chain. Why has it driven so much interest and excitement in recent months? First, it's important to understand what led us to the current situation and what some of the longer-term implications will be for our industry. COVID-19 was certainly not the sole cause of challenges in lithium, but it amplified near-term pressure by temporarily delaying the strong rebound in demand that was expected in 2020. A lack of visibility in supply chains and a lack of confidence as to ultimate consumer demand caused a dramatic decline in orders for lithium, and this led pricing to levels that were even further below the marginal cost of production. Unsurprisingly, this reinforced the decision of many higher cost, non-integrated converters to curtail operations, as well as further delaying many proposed expansion projects. Following the reopening of automotive production plants in the second half of 2020, the resiliency of electric vehicle sales became increasingly clear. Supported by renewed focus and commitment from governments and leading OEMs, EV sales climbed at year end. And this growth was not limited to China, which was earlier in its COVID-19 recovery, but in fact was led by Europe, which ultimately surpassed China in total EV sales for the first time in 2020. In the final month of December, global EV sales grew over 100% year over year and set record penetration rates of around 7%. The total of over 3 million EVs sold globally in 2020 was an increase of over 40% from the prior year, which is even more impressive given the decline in the overall auto market. As a result, we believe total demand for lithium chemicals on an LCE basis likely ended modestly higher in 2020 versus 2019. As lithium demand increased in the second half of 2020, supply also began to tighten, and we saw notable lithium price movements in December as a result. This started with published carbonate pricing in China, which rose very quickly in a few short weeks, and now appears to be spreading across lithium products and into overseas markets. We expect this tighter supply and higher pricing trend to continue through 2021 as demand continues to accelerate and non-integrated spodumene converters are impacted by higher spodumene prices and are constrained by more limited near-term spodumene feedstock availability as a result of drawn-down inventory. We do not expect this trend to be linear, especially as there is typically production seasonality in various parts of the world. But we do expect the trend towards higher prices to be a theme throughout the year. It's important to recognize that even though lithium prices have moved off of a recent floor, the published prices that we see today, and indeed our expected realized prices in 2021, are still not at reinvestment levels. The pricing lows of 2020 were well below the all-in cost necessary to produce reliable, high-quality material, particularly in an industry growing as rapidly as lithium. we continue to believe that we need a sustained period of higher prices in our industry in order to ensure that expansion projects earn an acceptable return on capital. And a lot of the focus has turned towards how high lithium prices can go in 2021. And while important in the context of short-term decision-making, it needs to be viewed in the context of a decade-plus growth opportunity. The pro-electrification policies being implemented by major governments around the world go beyond near-term subsidies and incentives. They will fundamentally transform the way future economies are powered. In September, China pledged that CO2 emissions in absolute terms will peak by 2030, and several weeks ago implemented the first phase of its carbon trading program. In Europe, the new circular economy action plan under its Green Deal will require carbon footprint declarations on rechargeable batteries beginning in 2024, followed by maximum carbon footprint thresholds by 2027. And in the US, there's renewed focus on electrification under the new administration. The most recent announcement to replace over 645,000 vehicles in the US federal fleet with domestically produced EVs appears to be just the beginning. And those of you that are in New York City frequently will start to notice that even that venerable institution, the yellow taxi cab, which not so long ago was still running a fleet of 1990s-designed Crown Victorias, is now starting to build a fleet of Tesla Model 3s. The bold announcements from premier OEMs also continue to come, with General Motors just releasing its new target to offer electric vehicles exclusively by 2035. Additional, Ford announced its EV spending through 2022 will increase to $22 billion versus an $11.5 billion prior target. It's always been a challenge to forecast demand for the lithium industry, particularly as it relates to specific timing and the impact of shorter-term market developments. However, we have long talked about the continuous multi-year growth in lithium demand that will soon result in 1 million tons of demand, or over three times today's levels. whether that is 2025, as we previously forecasted, or is now likely to occur earlier. The growth won't stop at that point, and the need to continuously expand available lithium capacity won't ease. And this escalating demand is now becoming more certain, as electric vehicles and energy storage are further ingrained with the global consumer. In fact, if anything, most long-term demand forecasts for lithium are proving to be more conservative as the likes of Tesla publish their own ambitious growth projections. And on the supply side, there are several notable challenges to meet in these increasingly high lithium demand forecasts. First, while some lithium chemical conversion plants can be brought online quickly, new lithium resources required to feed those conversion plants take many more years to bring into production. Even under the unrealistic assumption, the long-term capital availability is unconstrained. Additionally, the marginal end of the cost curve will continue to increase over time as new, higher-cost resources are forced to be brought online. And the sustained low lithium prices we experienced over the last two years will have ramifications years into the future, especially for capital providers and for developers of marginal cost assets. And second, as we've discussed, there's increased scrutiny on the sustainability impact of the lithium supply chain. If the industry is pushed to localize and improve its environmental footprint, decisions on where to build additional production facilities cannot be solely determined based on the cheapest capital or operating costs. Regulations such as the carbon content limits being proposed by the European Commission may result in some types of lithium production being unacceptable or simply not permitted in certain key EV markets. And finally, as battery producers shift their investments further toward high nickel cathodes, they are somewhat constrained by their requirement to only use qualified lithium hydroxide in their production processes. We can attest to the longer and more complex qualification processes that battery makers are demanding for the highest nickel content applications. These greater demands can add higher cost of production, reduce the flexibility for our customers to switch between suppliers of short notice, and increase the importance of having long-term commitments from reliable suppliers that can provide volumes at scale and grow. If customers are serious about building a more secure, sustainable, and localized supply chain, procuring battery materials solely from one supplier or even from suppliers in only one geography using a single conversion process, or even relying on short-term markets to meet their needs, will just not be possible. As more OEMs start to better understand the lithium market as active purchasers of material, we expect they will further align themselves with the most credible existing producers under long-term arrangements. Given Liven's longstanding track record and differentiated position, highlighted by its low cost profile, strong sustainability footprint and global capabilities, we believe we will continue to be a partner of choice and are well positioned to take advantage of this opportunity for years to come. I will now turn the call back to Dan for questions.

Thank you, Paul. Rob, 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 may jump back in the queue. And to withdraw your question, you may press the pound key. We'll pause for a moment to compile our Q&A roster. And your first question comes from a line of Chris Cash from Luke Capital Markets. Your line is open.

Yeah, hi, good afternoon. Just had a follow-up question on the discussion around the BMW contract. And against the context of your comments about pricing that aren't really sufficient to support reinvestment. So I'm wondering if, without providing too much detail, does the pricing in that contract, would that be sufficient to, you know, for reinvestment economics? I'm asking because you said multi-year. It's a multi-year agreement. So I'm wondering if you have – if that agreement portends supplying out of an expanded resource or out of your existing resource. And I have one follow-up.

Yeah, sure. Chris, you can imagine that I'm probably not going to answer that question. Let me try and – do the best that I can, which will essentially tell you, this is part of a longer-term partnership that we're constructing with BMW. We think it's really important that that we set the framework for what a supply chain and a supply relationship actually looks like. And there's a sustainability piece to that. There's a flexibility piece to that. There's, frankly, a diversification piece to that as well. And so it's more this contract has a lot of, in my view, a lot of very progressive aspects to it that we think are really important to where the industry needs to go in the future, both In terms of our side and from the OEM side, when it comes to reinvestment, I think it all boils down in the end to some of the prices that we believe will be available in the future across our entire portfolio. It isn't that every single contract needs to have a specific price level before we can enter into it, but across our entire portfolio, we need to have enough visibility into the price levels to justify putting that capital to work.

Okay. Let me, the follow-up would be, you know, you mentioned that you're supplying both carbonate and hydroxide and that you're in the process of qualifying some products. So that, I think it implies that this is carbonate from, you know, you're not using third-party carbonate, but products from your asset in Argentina. There's been like a narrative from some that suggest Western OEs prefer their hydroxide from hard rock assets. In this case, clearly, you know, since it's implied that they're sourcing from a brine asset, that's not the case. And so I'm just wondering, you know, how much of a, How important was sustainability? And then knowing that they'd be sourcing effectively from a Brian asset, how did that play into the conversation in this ultimate agreement that was forged? Thanks.

You know, I think it's fair to say it was a critical part of the conversation, but it's never an easy conversation to answer because I think there remains – a degree of confusion. And you've seen some public statements from some European OEMs that frankly were maybe a little misguided in various places about the difference between spodumene and brine-based resources. It's probably fair to say that if your primary concern is carbon content, then you tend to prefer brine-based lithium. And then your attention turns to water usage and local community issues. And when you do that, then it becomes a technology conversation. And there are, of course, different technologies being used in different brine resources. I think you've heard us say in the past that we think we walk a pretty balanced line in terms of being sort of on a positive end, but not the best at carbon content. And on the positive end, probably amongst the best in terms of water usage. And so it really sort of frames, I think, the complexity of that conversation that says, this you can never have everything and and if you really do care about carbon content you really are forced to take a long hard look at grind resources and you really need to start thinking very very carefully about an integrated producer who can actually make commitment all the way if you are going to go to hard rock all the way back to the mine it's not really credible if you're putting sustainability in in those factors at the forefront to just pick a non-integrated converter. It's just too difficult for them to be able to qualify their production processes with you.

Hey, Paul, is it right to conclude that this contract skews more heavily towards hydroxide vis-a-vis carbonate, or can you share any detail there? Thank you.

Yeah, it does. It skews towards hydroxide. It's really based upon hydroxide, but with that flexibility and optionality to take carbonate. I think we're all realistic that the technology roadmap is fluid. I think we all know the trend is towards hydroxide, but predicting it on a one- or two-year basis is just as difficult for some of the car companies as it is for us. And so putting that flexibility in, I think, was really attractive to them, and frankly to us, of course, because we do produce both. We don't have to make a decision as to what to produce. We always start with the carbonate. So we are structurally capable of offering that flexibility. Thanks.

Your next question comes from a line of Bob Cort from Goldman Sachs. Your line is open.

Thanks very much. I think Gilberto had some comments about some challenges in resuming the construction efforts in Argentina and some things that may get in the way of that. I'm curious, you know, the market now has something like a better than 50 times EBITDA valuation on your equity, and we've seen many of your competitors raise funds. Is that an avenue to jumpstart and resume the expansion program? Have you considered that? Should we look for that in the coming days?

First of all, Bob, I hope you've got some power down there. I'm not using all your cell phone battery. I'm on as I hope. But let's... The expansion in Argentina, restarting has never been a capital availability question in the first instance. It's really about the complexities of operating in Argentina today. And there's no doubt those complexities are real, but not insurmountable. You can assume that we are talking quite extensively to the local authorities about what it would mean for us to restart, what we would be looking for from them, and equally, by the way, what they are looking for from us with regard to a safe restart of expansion in a COVID world. So, look, I think we're taking a long, hard look at it. You know, it has to progress at its own pace. Argentina has its own challenges and issues. They have their own objectives. I think the dialogue that we have, by the way, down there, it's probably the best that we've ever had, certainly the best that we've had in the six or seven years that I've been involved in this business. So, At the moment, I feel that we will soon have an answer as to what a restart looks like and what the timing of it will look like. Clearly, at that point, we will then have to answer some other questions with regard to financing, funding, et cetera. But that's more of a long-term question than an immediate one.

Gotcha. And then, I mean, it sounds like maybe a little opening that it's not an all-hydroxide future, in light of your comments around the BMW purchase. Is it possible you might go deeper into carbonate, or is there something about low nickel chemistry that has changed your opinion, or how should we interpret the notion that there's a broader portfolio?

Yeah, I've been pushing for a while. I mean, as long as I can remember. Remember to say, I would love to have more balance between carbonate and hydroxide. I continue to believe that carbonate not only is not going away, but will continue to grow. I continue to believe that we have an advantage position from a cost perspective, even though the technology advantage and the process capability advantage we have in hydroxide is maybe not as pronounced in carbonate. It's just good business for us to diversify into more carbonate. And we really have not had enough to be relevant and credible. We would like to have more balance between carbonate and hydroxide. But we are first and foremost going to be a hydroxide producer. And so I think, yes, and this is not driven by a view on technologies. I think if you took a view out a few years and you look at carbonate demand today, the least aggressive forecasts that I've seen have demand for carbonate climbing by about two to two and a half times between now and 2025. In absolute terms, more than hydroxide will grow over that same period of time, even though the percentages are higher for hydroxide. And so I think having some exposure to that kind of diversification is something that I think would just be good business for us, to be honest, Bob. Perfect. Thanks, Bill.

Your next question comes from the line of Chris Parkinson from Credit Suisse. Your line is open.

Great. Thanks, guys. And, Paul, I'm trying to make sure I answer this in a way you can hopefully answer. Just outside of a pricing, can you hit on a few of the other factors that may have changed in the recent weeks or months that didn't enable the supply agreement? I mean, presumably you've been in talks for a while. And then if you could kind of extend that commentary a to what gaps elsewhere still need to be bridged with other OEMs given their ongoing initiatives that you haven't really locked in yet. So just any additional framework on how we should be thinking about these going forward to the extent of which you can share. Thank you.

Yeah, sure, Chris. I think you need to talk to your colleagues in the auto analyst side of the shop because this really is down to how quickly an OEM themselves can get confidence around their own EV platforms. I think we've certainly seen in Europe the action of the regulator has now forced more European OEMs to start to act and start to take action. And that involves making a decision on battery technology, at least for this generation of launchers. It also forces them to think out about who they're going to source their batteries from. And I know that's a little bit more complicated for some companies in the last few weeks. And it's forcing them to think a little bit more about what that supply chain looks like and where they're going to go in that supply chain. And then, of course, look even further down and say, well, what differentiates my EV versus somebody else's if it's not a powertrain anymore? And so questions like sustainability and environmentally friendly selling points start to come to the forefront. Until the OEMs actually start to get confidence about what their position is, what stance they're taking and how they're going to define their EV platforms, It's pretty difficult for them to then start to go back down the supply chain and put the supply agreements in place. I think it's also difficult for them because this intermediate step of battery production is still incredibly fluid. It's incredibly fluid. And I don't just mean the battery producers. I mean the cathode production. If you want to produce cathodes... If you want to buy batteries, the cathodes today are all largely being produced in China. And so if you're trying to diversify away from that, you start to scratch your head and say, how do I localize cathode production? And that's not really happening that quickly either. So there's a bunch of big pieces that need to be put into place. I think the more forward-thinking companies are therefore saying, look, I need to start developing the relationships, not just with lithium, but maybe with nickel and other producers today, and put in place agreements that are fluid and flexible enough that this is somebody I can partner with over the next three or four or five years while this starts to evolve. And that's not, frankly, a typical way at an automotive OEM. has operated. We know how they've typically operated as they drive maximum profitability out of their operations. So many of them just have to make some meaningful cultural changes, I think, before they can make those decisions.

I'd say being 100% in certain regions is a pretty aggressive target, so we'll see how they bridge that. The other question I had is just kind of going back to the expansion on Bob's question, just One of the, let's say, near to intermediate term pieces of the thesis has just been what's everybody seeing on the ground in China in terms of stockpiles. It definitely appears the situation is beginning to ease, if not improve materially. Can you just hit on how that situation, as it kind of started off in 2020, is impacting your current contracts and discussions, and then just what needs to happen for you to fully detach from China's spot prices on a go-forward basis? Thank you.

Yeah, you know, China spot prices have always been an interesting beast in our industry because, you know, I think we had one of our competitors say earlier today that they don't sell really anything to speak of at China spot prices. And we certainly don't participate in the China spot market. Just the nature of our product portfolio doesn't lend itself to that being mainly hydroxide and mainly qualified material, not just technical grade. And so I think what China Spot does is create an unfortunate conversation with some customers about what their price expectations are. And, you know, there's always some people out there who are willing to take a risk on unqualified material. There's some people always willing to take a risk on reprocessing material. And the willingness to do that grows when you see an oversupply into a market like we saw in China. So it makes contract negotiations more difficult. I mean, they say timing is everything. You know, most of our contracts with customers for 2021 and the pricing in them was put in place largely in sort of September, October window, maybe November window of last year. And, you know, it was just two, three months too soon relative to what was happening out there. And so. I think the disconnect from China's spot crisis, I think, will only happen when the market just matures, matures, matures, when more people are engaged in the market, when more ultimate consumers, the ultimate companies, become consumers. active purchases of lithium or at least become actively engaged with the challenges of securing lithium that their battery suppliers are willing to use. Once they get to that point, I think they will understand the complexity and that maybe just having a price that is hard to verify, that is probably not directly comparable in terms of product quality, terms, etc., appear in China is not really the right basis for conversations. And I think that will become especially acute when the inevitable price spike does come, when people look around and say, I really don't want to expose myself to something that can go down as low as $7 and up as high as $27. I think that's a pretty scary place, given the margins in the EV industries for many of these car companies to put to place themselves.

It's very helpful, Calder. Thank you, as always.

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

Thanks for taking the question. First, kind of conceptually, you said you're still contemplating whether to resume capacity expansion. What are the specific variables, factors that you're tracking in making that decision on the timetable? Yeah, I would probably change the wording.

We're not still debating whether to restart. It's a question of when we restart and how we restart and, frankly, what we restart. As I'm sure you know, we have a program in Argentina to expand capacity by 40,000 tons and to do that in probably four phases, four steps. there's really nothing to stop us doing that more quickly, doing it in two steps. We certainly wouldn't do it in a single step, but doing it in two steps. That does bring some other challenges, and to take on that commitment would require some strong commitments back from us, particularly from the province of Catamarca where we operate, as well as from the Argentine federal government. We're not looking, frankly, for much other than certainty and a path to making sure that we get this done on time and on budget. And you can imagine those conversations are pretty well advanced. I think the second thing, and we touched upon it earlier, is it's going to be a function of where we choose to make long-term commitments to customers and what we choose to do, because the sooner that people start to step up and are willing to make the commitments to us, and it's not just about price, it's about a true commitment. a true certainty that what we have here is a multi-year agreement, then that, of course, will be a big factor in how quickly we restart those expansions. It will also, frankly, shape how much downstream capacity we take on. If more and more customers like the idea of flexible supply agreements where they switch between carbonate and hydroxide, we may not add as much downstream hydroxide capacity as we otherwise would have planned. But that will largely become more clear based on conversations with our customers.

That's helpful. You mentioned that Europe is now at the forefront of light-duty electrification. You have a plant in England, and I'm curious, what role does that facility play in battery-grade hydroxide? And if it doesn't, is there a logic for perhaps converting it or kind of repurposing it for the European battery market?

Yes, a couple of points there. That is a beautiful lithium plant. It's a small footprint. We don't do any lithium hydroxide there today, and we certainly don't have the space or the capacity at that location to put a lithium hydroxide facility there. So we wouldn't use an existing facility in Europe. You know, I think maybe people have heard me in the past talk about I do believe Europe will be an important market in the future. But for that to happen, it comes a little bit back to some of the comments I made earlier, which is even if people are assembling batteries in Europe, even if Europe's the largest market, the lithium goes into the cathode materials, and all of that is being processed outside Europe. So until there are meaningful cathode plants being built in Europe, and there are a couple being talked about, but until those plants go in, there's nowhere to sell the lithium to in Europe. And so even if you make it there, you're just exporting it out at that point in time. So it's a bit chicken and egg. Now, we are fortunate that we can build quickly. And if somebody wanted to... have a lithium hydroxide plant put in place, we co-locate very well. We use common infrastructure. We do not produce waste really at all in our lithium hydroxide process and like a spodumene-based process. And so it's actually a pretty attractive option for many people to talk to us about locating hydroxide plants. I think Europe is still a little bit away off of actually developing its battery industry and the supply chain for the battery industry, though, to the point that those kinds of decisions are likely, certainly not in 2021, I don't expect.

Right. Good point. Thanks very much.

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

It's a good afternoon, Paul. A couple of questions. I'll do one by one. Going back to the BMW deal, BMW is much better than DML for you. I was going to say... Can you maybe talk about, you know, who those tons would have gone to? So, you know, you would have sold these tons to a customer or a child, you would have sold them to an OEM, to a cathode maker, like just a battery maker, a cathode maker. Can you just give me a sense of, give us a sense of, you know, how you're shifting your portfolio here and who you're selling to now versus who you were selling to before, if that makes any sense?

Yeah, look, it's hard to specifically answer that because I don't know where it would have gone. Yeah. The industry is evolving, and you've heard me talk about this. I think, first and foremost, the historical sale of lithium materials directly to cathode producers It's not quite the same today as it was a year or two ago. I think while we do still sell to them and they are still active purchasers, for most OEM, Western OEM platforms, the capital producer is no longer in charge of the buying decision. They are, by the way, for many non-OEM applications. So I wouldn't say that as a customer base is not important and not going to be important. It is and it will be. I think the battery producer themselves have tried to insert themselves into that space with mixed success and not entirely always consistently. And so if I was to really predict, I would expect in the future most of our volumes will go to an OEM contract or directly to the cathode producers for non-OEM applications. And I would probably guess, and I'm only guessing now, that the amount of sold under contracts held with the battery producers themselves maybe won't be as great as we might have thought a year or two ago.

That's helpful. If we can look into 2022 a little bit, just on just general volume, how would you see having more volume in 2022 right now, carbon dioxide, carbonate, just give it maybe a little magnitude of what we could see there?

For the market or for ourselves? Oh, sorry. Again, it's a hard one to answer. I mean, our challenge remains that the demand is there for hydroxide. It's going up to carbonate to feed it. And so the couple of things that I would look to, I think first and foremost, it will depend on how quickly and how confident I am that I can bring on board the the Argentina production. I think, as we've said in the past, we're willing to be short carbonate for a period of time when we know that our own carbonate is coming. And so it may be that we do add hydroxide capacity for 2022. in order to be able to meet customer demand at that point in time. And if we do make that decision, we have no choice then but to add the carbonate capacity. It may, though, be that we just do this through Namaska. You are pretty familiar with them, and that's an asset that, as we work through what the right decision is for Namaska, there could certainly be both carbonate and hydroxide produced there, depending on the decisions we make. So it's a little bit hard for me today to tell you exactly where we'll be. I would just say if you give me another quarter or two, I suspect I'll be able to give you a bit more visibility as to what 2022 volumes look like for us.

How much lead time would you need to get more hydroxide volume for a sample in 2022?

You know, as Gilberto mentioned earlier, some of our capital spending that we stopped last almost a year ago now, was on a new hydroxide line for Bessemer City. So much of the spending on the capital has actually been done. And without massively oversimplifying, as my team love it when I do this, you know, we kind of have all the steel. We have all the plant. It's all ready to be installed. It just needs to be installed. So we could actually get a hydroxide plant in Bessemer City today, lift up and running pretty quickly if we felt that we needed to. That's perfect. Thanks.

Your next question comes from a line of PJ Juvicar from Citigroup. Your line is open.

Hey, Paul. I need a little clarification. When you say annual contracts, does that mean that they start all on January 1? Or do you have some contracts rolling through the year? And if that's the case, then the contracts that expire in second half, could you see better pricing there?

Most contracts are annual, PJ, vast majority of them. So we do have some, by the way, that do expire off annual, but they tend not to be in the hydroxide market. They tend to be in the butyllithium, sometimes in the grease industrial applications, but very few of them, very little volume. What we actually have is contracts, again, just when we negotiate the contract, there's two pieces to a contract that we care about, how much and what price. We always try and fix the how much piece first and foremost, because that's what our production plans for the following year can then be put in place. And it's much more efficient to have an annual volume commitment from your customers that you can then plan around. Historically, both we and our customers wanted to know the price. And so you tended to put them all down at the beginning of the year. What has evolved over the last couple of years has been an attempt led by customers to follow indices to a sense to say, I'm happy for my price to change as long as it follows market prices. There's no clarity, though, amongst these customers about which indices they like. They don't really want to follow China at all. So China prices are almost always completely excluded from an index that they look to. They also get a little bit nervous about moving the price every month, and so they like to have a smoothening effect in there. So they have a light on it, for example. And that's why we talked about in the second half of the year the contracts we have with customers that look to some form of market price, whatever it may be, and they're all different. is likely anything that happens in January doesn't actually hit pricing until July, which is why we talk more of a second half of the year opportunity. Now, we do have some volumes where we've agreed with the customer, look, we'll just sit down every month, see what we think the prevailing price is, and we'll negotiate a price at that point in time. We have historically not done that much, unlike some of our competitors, but we do have some of those contracts in place for this year as well.

Great, great. Thank you for that color. And then can you talk about Argentina effects? You know, peso has been volatile. How do you plan to handle that volatility? And in the future, how do you plan to take cash out of Argentina? Thank you.

So the second question is the easiest, which is we probably won't be taking cash out of Argentina in my lifetime. We're putting cash into Argentina, right, when you think about the expansion. So no cash is getting trapped in Argentina anytime soon because there's plenty of local investment that needs to be done to bring capacity online. So I'm not too concerned about that piece. The effect, you know, the effect piece is just less and less relevant in our business. You know, more and more of our business is conducted in U.S. dollars. It's a lot of local salaries. And so we do adjust local salaries on local inflation bases. And so our cost benefit or hit is always when inflation and currency depreciation are not in line with each other. salary inflation particularly, what we try to do is keep them as close as possible. And so we do work with our employees down there to treat them clearly fairly and make sure their standards of living are maintained, but also not just look at local inflation, but also tie in as much as we can a currency piece to it. It's never perfect. And there are times when we benefit and times when we don't. But as I said, the bulk of our costs down there, whether there's energy costs or other input costs, are not peso-denominated anymore.

Thank you.

Your next question comes from the line of Mike Harrison from CIFAR Global Securities. Your line is open.

Hi, good evening. Just a couple of questions on the guidance. Can you maybe walk through some of the key variables that could drive you toward the high end or the low end of EBITDA? Is it all pricing or are there some other components? And maybe talk about the cadence of earnings, best to assume that most of your earnings are going to be weighted toward the second half this year.

So I'm sure you conspicuously noticed that we're not giving quarterly guidance, and so I'm not going to try and do that. I don't know that it's back half of the year, but I can answer you that upsides and downsides are pretty much price driven. We know what that cost structure looks like. We know what volumes we have. Now, clearly, if we had a massive reversal in the market and the demand wasn't there, like what happened in 2020, the volume may not be as high. I think that's always possible, but in 2021, not very likely. So it really comes down to, A, what happens to price? And also, just as importantly, where does it happen to price? As I mentioned about the contracts that we have, If there's a price change that is not reflected in the indices that in some cases we're pricing up, then we won't get any benefit. Equally, if those indices move more than what we see in other places, we'll get more benefit. But you should assume that the variability in 2021 is massively dependent on what our average realized price turns out to be.

And then I wanted to ask about your comment on increasing quality and qualification requirements. How do you think your capabilities stack up against competitors there? And would you say that there is a growing number of suppliers out there that can meet more stringent requirements, or are the requirements getting more stringent more quickly than the capabilities?

Yeah, I would today say that there are three companies in the lithium industry globally that I have confidence can produce lithium hydroxide at current specifications. I think there are maybe two or three more that get close and essentially will require their material to maybe be treated a little differently or maybe they work in certain applications but not all. But those numbers haven't changed. They haven't changed in two or three years. In fact, I might even argue that probably the three that I said might have been four or five at one point. The specifications have tightened enormously. They just haven't. And it's a really interesting process because all it does is limit the number of people that can actually supply into certain applications. And it makes it harder for customers to switch applications. It also frankly in some cases can cause challenges about where you source your lithium from because some of the impurities are specific to a particular brine-based resource or a particular spodumene resource that means that it's just not cost effective for you to meet a spec if they're picking on a particular impurity that's specific to your resource. So it's all just making the landscape more difficult frankly for the battery producer. Now will this continue? I don't know. We actually have many conversations with our customers that say, look, if you are willing to relax the spec, it allows me to produce at high volume because essentially meeting the spike slowed my production rates down. And we can have a conversation then about prices, et cetera, but they're just so nervous about product quality. They have so many challenges producing these next generation of batteries that they are absolutely appropriately focused on every piece of the supply chain. and they're reducing their tolerance for variability and for impurities. Again, I think, frankly, from my perspective, it's a trend that we've been talking about for several years, and I think it's another reason that it supports and gives sort of an incumbency advantage to those of us that can actually demonstrate not only that we can do it, but we can do it from multiple locations and at multiple plants.

All right, thanks very much.

We have now reached the allotted time for questions. I will now turn the call over to Daniel Rosen for brief closing remarks.

Thank you. That is all the time that we have for the call today. We will be available following the call to address any additional questions you may have. Thanks, everyone, and have a good evening.

This concludes the Libent Corporation fourth quarter 2020 earnings release conference call.