Livent Corporation

Good afternoon and welcome to the first quarter 2021 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, Erica. Good evening, everyone, and welcome to LiveIn's first quarter 2021 earnings call. Joining me today are Paul Graves, 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 ROEs 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, are provided on our industrial relations website. And with that, I'll turn the call over to Paul.

Thank you, Dan. Good evening, everyone. I have to admit it feels about five minutes since we last did this. Before I begin, I want to once again thank all of our employees for their hard work and their ability to adapt during these challenging times. I also want to acknowledge the reality that the recovery from COVID-19 has been uneven around the world. Alive and we will remain vigilant across our global operations and continue to work closely with local authorities to prioritize safety as we all get through this together. We have a number of important topics to discuss today, including performance in the first quarter, the continued positive trends seen in the market and how we expect them to evolve in 2021 and beyond, and the decision to resume our capacity expansions backed by the recent execution of multi-year customer agreements, support from local stakeholders, and an improving overall market backdrop. So starting with our first quarter results on slide four, we reported revenue of $92 million, adjusted EBITDA of $11 million, and adjusted earnings of $0.02 per diluted share. Revenue increased 12% sequentially, driven by higher volumes, and increased customer demand across most of our products, particularly in hydroxide. This was partially offset by slightly lower pricing, reflecting Livent's annual fixed price contracts that were negotiated in 2020 and reset in the new calendar year. Adjusted EBITDA was nearly double the prior quarter. This profitability improvement was driven by higher volumes and lower operating costs, partially offset by slightly lower pricing. The rapid improvement in published lithium prices we saw at the end of 2020 has continued in 2021. As stated on our last earnings call, we did not expect much pricing benefit in the first quarter, given where prices were previously set with many of our customers and with our available volumes for 2021 largely committed. Much of the pricing upside for Libent will be in the remaining part of 2021, on the subset of our customer contracts that are subject to monthly or quarterly price renegotiation or have a lag from market-linked pricing adjustments. While our 2021 guidance ranges for full-year revenue and adjusted EBITDA remain unchanged from last quarter, we do expect to perform at the higher end of these ranges as market conditions continue to improve. We will adjust our estimates as warranted as we move through the year. The momentum in market pricing that we have seen and expect to continue appears to be rooted in a strong increase in demand that is significantly exceeding supply growth. This reflects what feels like a real and fundamental turning point in our industry, and we expect to benefit from this even more as we approach contracting with customers for 2022. We are already seeing an increased sense of focus and urgency in conversations with both existing and potential customers. The multi-year supply agreements that Liven has executed over the last few years reflect the company's position as a global leader in the lithium industry, with a fully integrated operating model, recognized as a reliable supply partner, with a proven ability to meet continuously tightening quality requirements and a best-in-class sustainability profile. Additionally, our ability 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 in their supply chains. We are one of the few producers of battery-grade hydroxide outside of China today. And as a company that is continually looking to innovate and develop next-generation lithium compounds to advance battery technologies, we want to align ourselves with customers that are leading their own innovation efforts in electrification and appreciate what we can bring to the table. Supported by improved pricing and the execution of recent long-term supply agreements, among other positive factors, Livent has restarted its capacity expansion plans in both the United States and Argentina. I will now turn the call over to Gilberto to go through this in more detail.

Thanks, Paul, and good evening, everyone. Since the time Livent halted its expansion plans in the first quarter of last year, during the onset of the global pandemic the company has been working diligently to determine the optimal path forward for when we would resume activities part of this was ensuring full comfort and alignment with the local government and communities in which we operate particularly in argentina as you know We worked closely with the Argentine government last year to develop and administer a safe and practical set of protocols following the mandatory countrywide quarantine. As a result, we were able to resume production after only two weeks of downtime in 2020. Increased activity and transportation of people and construction equipment to the remote area like the Salar del Hombre Muerto requires additional planning, and we're glad to have accomplished this in partnership with and supported by our local stakeholders. And while COVID-19 might continue to provide logistical challenges as we progress on our expansion, our last 12 plus months of successful regional operations give us well-prepared to navigate and adapt as necessary. Additionally, we have been focused on optimizing and restart from both a capital and timing perspective. At the time of pausing expansion, we ensured that we completed critical steps that would allow for an efficient and lower risk restart plan. This included completing module construction and shipping and storing them in-country. which is particularly important today given some of the global logistics challenges. On slide five, we provide the latest details on our near-term expansion plans. Live-in 5,000 metric ton hydroxide addition in Bessemer City and its phase one lithium carbonate expansion of 10,000 metric tons in Argentina were both in progress at the time of pausing last year. These are now expected to reach commercial production by the third quarter of 2022 and the first quarter of 2023, respectively. Additionally, Leiden has made a decision to commence its Phase II carbonate expansion in Argentina for an additional 10,000 metric tons, with expected production by year-end 2023. We would expect a ramp-up to run rate capacity on each of these units to be fairly quick, given the direct extraction process that we implement in Argentina and the fact that the new hydroxide unit will be focused on customers that we already qualified with. So you should expect 2023 to reflect a large portion of the new capacity from phase one in Argentina and Bessemer City. and 2024 to include Phase II capacity from Argentina. Our total capital spending in 2021 is now anticipated to be approximately $125 million, with $25 million of that amount going towards maintenance spending. Full-year adjusted cash from operations is projected to be in the range of $45 to $65 million. We will continue to provide further details regarding our expansions as we progress. I will now turn the call back to Paul to discuss our expansion plans further.

Thanks, Gilberto. Slide 6 provides a graphical illustration of what the completion of these near-term expansions will mean for our total production capacity. We expect that by the end of 2023, Livent will have roughly doubled its carbonate capacity in Argentina from today's levels to 40,000 metric tons, creating the opportunity to significantly increase our earnings power from today's volume-constrained levels. Based on our current plans, once these expansions are complete, we will be long carbonate or have a surplus in our operations of about 14,000 metric tons. This is important for two reasons. First, it eliminates the need to source third-party carbonate to feed our hydroxide units, which will increase our profit margins in lithium hydroxide. Second, it gives us the flexibility to participate in the growing carbonate market or to provide additional feedstock for further hydroxide expansion should our customers need it. As we have discussed previously, our past decisions to sell limited volumes of lithium carbonate to customers has reflected a focus on our demonstrated strength as a leading battery-grade hydroxide producer, where demand growth from our customers has meant that we consume almost all of our carbonate production internally. While we will maintain our focus on meeting our customers' growing requirements for battery-quality lithium hydroxide, we also continue to believe that Livent should have greater direct exposure to the carbonate market in the future. and our expansion plans allow us to get to that point more quickly. While our team will be focused on execution of these expansion plans for the next three years, we of course cannot stop there. As we set out on slide seven, we must continue to expand our production capabilities to take advantage of the huge growth opportunity from our customers and the industry over the coming years. And we feel we have a number of attractive opportunities to do so. Our operations in Argentina allow us to be one of the lowest cost producers of both lithium carbonate and lithium chloride globally. Our view since the IPO in 2018 has remained that we have the capability to triple our carbonate capacity in Argentina to 60,000 metric tons and that it is one of the most attractive areas to deploy capital. Additionally, we intend to keep expanding our global hydroxide network to align with customers, especially as their specification and geographic needs continue to evolve. Our modular approach to hydroxide expansion allows us to build new units quickly and capital efficiently. However, how and where we build will determine the required capital, and we would expect to have the appropriate commitments from both customers and local authorities to support us in these efforts before we would make any firm decisions. This will only become more important as the calls for regionalization of EV and battery supply chains becomes louder, especially in North America and Europe. And finally, we have an attractive position in our partnership with Palinghurst and iQ in Namaska, located in Quebec, Canada. As a fully integrated lithium chemical project powered by renewable hydroelectric energy, it will be well positioned to serve the growing markets in North America and Europe. We are currently working with our partners on an optimization study that will determine the best path forward for commercial development including lithium products, capacity, timing, and capital requirements. We intend to provide further information regarding the results later in 2021. I'd like to spend some time outlining recent positive changes in market conditions and how we expect them to evolve. The signs of increasingly positive lithium market dynamics that emerged late in the fourth quarter of last year have continued so far in 2021. It is clear that the largest driver of this is much higher than expected demand for lithium, driven by strong actual and even stronger forecasted EV sales. While there have been some meaningful disruptions in the broader battery supply chain, especially with regard to availability of shipping containers and restrictions around movement of people, goods, and materials in some key geographies, we have not seen EV production itself slow down in the same way it has for many traditional ICE models. It certainly appears that OEMs are prioritizing successful EV launches when they are otherwise constrained. driven by factors that include emissions regulations, a desire for first-mover advantage, and increasingly consumer preferences. EV demand in the first quarter of 2021 was strong in all three major regions, with EV sales in March up around 100% month-over-month in China and Europe and up 70% in the U.S., Responding to this strong data and supported by increasing EV sales forecasts by OEMs, battery supply chains have accelerated their activity in the last few months, reflecting a confidence that these demand trends for EVs will continue. This is a stark difference from most of last year, when COVID-19 related uncertainty drove many purchases to delay orders and avoid building any potential excess inventory. In this environment, it is no surprise that the increases in published lithium prices first seen three or four months ago have continued. Published carbonate prices in China have effectively doubled year-to-date. And as you would expect, this upward price pressure is now being felt outside of China and is being seen in reported hydroxide prices. We're also seeing spodumene prices rise rapidly, which will continue to place upward pressure on costs for all non-integrated conversion operations. One interesting dynamic that we're watching closely is how variable price contract structures survive these trends. A much more prevalent phenomenon compared to the last time we saw increasing market prices is the structure of formulaic pricing of spodumene concentrate acquired under long-term supply contracts with the price charged for spodumene directly linked to published or indexed lithium carbonate or hydroxide prices. What this means is that as lithium chemical prices increases, so do contracted spodumene prices, creating a further increase in the converter's operating costs. This is likely to result in continued upward pressure on lithium chemical prices, since most converters were operating at close to break-even profitability, even with $400 a ton spodumene prices. So a move to $600 or $700 spodumene pricing, which is what we are now seeing reported, will force them to raise prices just to break even. Given these higher cost pressures, we are starting to see some lithium supply contracts being strained, with multi-year agreements with limited or no price flexibility quickly becoming unprofitable for these non-integrated converters. With little to no surplus carbonate or hydroxide available in the market today, we expect that many of these contracts will come under pressure to be renegotiated in the coming quarters. Supplies that are fully integrated from lithium resource to final lithium chemical production, such as ourselves, have the cost predictability and the security of supply to continue to deliver commitments made under longer-term supply agreements. We believe this is the right operational strategy, particularly in an industry that requires multi-year investment at a minimum for expansionary projects. We also continue to believe that many consumers of lithium chemicals will increasingly value having contracts with fully integrated suppliers such as Livent as part of their lithium supply portfolios. A final factor that we see is specific to lithium hydroxide in high nickel applications, and that is increasingly tight specifications and qualification requirements. As battery producers expanded their hydroxide-based battery lines in 2020, they diversified their supply to include new sources of hydroxide that had come online in 2019 and 2020. However, it is clear that not all of these suppliers have been successful in this qualification process, resulting in an even more rapid tightening of battery-qualified hydroxide markets. With most battery-qualified production capacity already sold out and limited new qualified capacity scheduled to come online, there is an increasing risk that this market becomes structurally short in the second half of 2021. In addition to qualification issues, the supply side continues to have its fair share of challenges. While many companies, ourselves included, have resumed previously paused or delayed expansion plans, there is little ability to expedite the timelines to bring online new production. Put differently, every day that an expansion is on hold adds at least a day to the point at which it will start. Even with today's operating assets, the challenge to meeting demand in the next 12 months alone is growing, with continued operating restrictions driven by COVID-19, global supply chain disruptions, which are likely to continue into the second half of this year, and gradual but consistent near-term demand forecast increases from customers. These supply-demand dynamics are having an acute near-term impact, but the supply pressures will continue to build before they start to ease, and our forecasts suggest that they will persist and even increase over the next few years. Escalating demand is becoming more certain, as electric vehicles and energy storage become further ingrained with the global consumer. Announcements from OEMs are coming more frequently, both in terms of ambitious electrification targets and the specs and timing of new and highly anticipated model launches. And as the success of the premium Porsche Taycan demonstrates, a car which, by the way, matched the Porsche 911 for sales in Q1 of this year, the near-term EV launches are largely being led by premium vehicles such as the Cadillac Lyrik and the Mercedes EQ range. These vehicles are typically launching with next generation high nickel batteries, which means the fastest demand growth over the next three to four years is in the highest quality, hardest to produce forms of lithium. The challenge for our industry in providing sufficient material over the medium term is clear. While lagging in EV adoption today, the push for domestic electrification is now a clear focus in the United States. The Biden infrastructure plan would see a proposed $174 billion invested towards the EV value chain. This would prioritize the domestic purchase and production of EVs, batteries, and raw materials, support local infrastructure, including charging stations, and electrify the federal fleet, including the U.S. Postal Service. The U.S. Department of Commerce has also been exploring ways to facilitate a North American EV hub with Canada, and this is an area where Livent has participated in conversations and has a unique position and perspective to offer. With respect to evolving battery technology, there's been plenty of conversation about the resiliency of certain legacy cathode technologies, particularly LFP, despite the much-promoted shift to high nickel cathode and ultimately solid-state. Given the high installed capacity in China and its solid cost position, there's no surprise that LFP, which can use either lithium carbonate or lithium hydroxide in its production process, will continue to make sense in numerous applications where performance requirements allow. However, this does not contradict the trend of higher hydroxide demand growth, As battery technology continues to mature and global OEMs roll out their larger EV platforms, we still believe that hydroxide demand will grow at a higher rate than carbonate and make up an increasing share of the energy storage market, particularly as manufacturing scales. But we will continue to operate under the assumption that both products will be critical for long-term energy storage. Putting all of this together, absolute lithium demand growth looks as strong as ever over the coming decade, as the general consensus continues to both rise and narrow. There is also the growing belief that it will be a challenge for the lithium industry to produce sufficient qualified material in the near and medium term. However, there is yet to be any agreement as to the best mechanism to solve this. Since expansions and new assets need significant amounts of capital, and the next wave of resources will have a higher operating cost than today's resources. We're watching carefully to see whether the market responds with higher prices, more direct investments by customers, or some combination of both. Either way, the need for high-performance lithium chemicals will, we believe, favor proven incumbent producers over new entrants with no proven track record. I want to finish on slide 10 with a few comments about sustainability. As you may have seen, the BMW Group recently put out a press release highlighting its supply agreement with Liven that we had previously disclosed. It also details a study of sustainable lithium extraction in South America that it is conducting alongside leading U.S. universities and that Liven will be contributing to. Most importantly, it elaborates on BMW's focus on establishing sustainable supply chains and working with partners that share that commitment. This is a distinguished area of strength for Livern and one that enhances the scope of conversations and the cross-functional teams that are involved when we engage with our customers. LIVEN will be releasing its latest annual sustainability report this upcoming quarter, and we look forward to providing further updates over time on progress against our new sustainability goals that we released earlier this year, which reflect the highest priorities of LIVEN's customers, communities, investors, employees, and other stakeholders. I will now turn the call back to Dan for questions.

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

If you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. Please limit yourself to one question and one follow-up. If you have additional questions, you can jump back into the queue. To withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question is from Chris Katz with Loop Capital Market.

Hi, good afternoon. Appreciate your comments about the evolution of the pricing dynamic and supply agreements and more specifically the advantage associated with being an integrated producer. Paul, curious in the context of your comments about battery grade being potentially structurally short in the second half of 21, is it right to surmise that any volumes that you have beyond 21, therefore, that are not under longer-term contracts would be subjected to meaningful price increases? And when do you expect to have visibility in and around what that might look like?

Hey, Chris. Yeah, thanks. You know, look, I think the assumption that we're all working under is that there will be upwards price pressure for anybody who doesn't have a lockdown, you know, performable contract, for want of a better description. And so, We do expect that 2022 is going to be a very different pricing environment. We do expect price increases. I mean, I think some of the data that I'd seen in the middle of this is up low numbers. You know, in three months, we saw carbonate prices doubling, hydroxide prices up 80%, and spodumene concentrate chasing it hard. And so these price pressures... Too great for this not to flow through to customers. And frankly, I think many customers recognize this. I think there have been many customers, if you get them in a quiet moment, will have seen the last couple of years as a bit of a honeymoon period for them, and they recognize that it could not last forever. And I think, as we've always said, we couldn't really predict when the prices will move, but we will guarantee you that when they move, they move quickly. And that is the case today. I think given the fact that we don't see this being a short-term issue, it's not like a big plant suddenly went down or one specific non-replaceable demand pool suddenly appeared. It's hard to know why this would not continue at least through 2022. And I think what that means is really through most of the rest of 2021, conversations with customers about commitments in both directions are going to become increasingly intense. And I suspect that before we really get true visibility on what our 2022 is going to look like with regard to pricing, it's probably going to be sometime in the fourth quarter.

Okay. And, Paul, my follow-up – I think people get that demand isn't an issue. You're resuming your capital expansion. That's underwritten, obviously. You have key testimonials from key OEs and other EV supply chain customers. I guess what a lot of investors want to know is what is the intent in terms of how much of this expansion will be funded organically, maybe on piggybacking off of, you know, much better profitability on pricing on a go-forward basis? Or what are some, you know, based on your modeling, what are some other options in terms of any funding gap that you'll need? Thanks.

Yeah, you know, look, I think the first thing I'd say is, For us, for Lizent specifically anyway, options available to us for financing today look very different than they did a year ago and really look very different than they have at any point since the IPO in terms of just general sentiment, general market dynamics, general visibility, et cetera. We're going to be patient. 2021, as we start into this year and as we start the expansion, I think you heard from Gilberto what our capital requirements are this year, and they do tend to come later in the year. So we're going to keep looking at all possible options, and there are many. I mean, it isn't just simply the case that we're going to have to raise debt or or do some other kind of equity raise. There are multiple options available to us. We probably have more people offering us capital today than we've ever seen. Our decision, though, is going to be very, very simple. It's which gives us the most certainty as to financing, and ultimately we believe brings the most value to our shareholders will be the path we go down with regard to the financing package that we ultimately put in place.

Fair enough. Thanks.

Your next question is from Bob Cort with Goldman Sachs.

Hi, DePaul. I wanted to ask, you made a comment in your prepared remarks about the lagging price or seeing it arrive on the live income statement subject to monthly or quarterly resets. I guess I was hoping for a little more visibility on that as we try to think about how soon you guys will benefit from what's happened. And it's quite an evolution from a few years ago when we were talking about annual or multi-year contract terms. So can you give us some sense of your portfolio products, how much reset monthly, quarterly, annually? And then what is the mechanism for that reset? Is there a benchmark price? Is it a negotiated process? How do you introduce the improved pricing into the contract structure?

You know, if nothing else, we've tried over the last year or two to try and figure out what our customers really want and what they're willing to do and what keeps them comfortable. And I think what we discovered from that is there is no single mechanism that makes everybody comfortable. You know, we went really through this path of comfort. Everybody being fearful of making long-term commitments and getting caught with uncompetitive prices when the price declines to customers now being extremely fearful of getting caught on a market price that is somehow just referenced to China published prices, which scares the life out of many customers. What we actually have in place today is predominantly annual contracts, annual pricing. So most of those were reset in Q4 of last year and will not change during the year or multi-year fixed price contracts. And we have, if you take those two together, by far the majority of our volumes. in our hydroxide and carbonate business, our hydroxide business, follow that path. I mean, I'm ignoring everything else we do in butyllithium and all those spaces as well. The rest of it, you know, the mechanisms really are reasonably varied, but all follow sort of similar themes. We have a couple that basically look at the benchmarks and simply price off a benchmark on a monthly basis. They are relatively low volumes. And in many cases, they are customers that are relatively, you know, not taking necessarily the highest quality grade material. And so they tend to follow that path. We have others that look to some form of index. Now, there's no perfect index, as we've talked about before. There's nobody really 100% comfortable with indices. And what we've tended to find is most customers have looked to have a lag in them. So as prices were falling, the pricing stayed higher longer for them. usually a quarter or two. And as we now see price rises, depending on whether they have a one or two quarter lag in those prices, you can expect to see the pricing on those start to climb almost certainly in either Q2 or more likely Q3 and then into Q4. And in terms of one of the challenges in answering your question about how much of the portfolio is this, it actually can really vary quarter by quarter. I think it's fair to say we had almost none of that in the first quarter. A lot of our volumes in the mid part and the later part of the year are more exposed relative to Q1 anyway to these price movements.

If I could follow up on Argentina, it sounds like you made some good progress there. Just curious what your thoughts are in terms of of the industry doing business in Argentina? Are there things that your history there is giving you an advantage? Is there some change in sort of the representative approach of the government towards all the lithium industry there? Is this something where, you know, you have a first mover's advantage in getting that incremental capacity out? Or just can you give us some sense of what those hurdles were, what's changed and how it's allowed you to go forward?

Sure. Look, I think every community in which you operate has a different personality. And Argentina has a distinct personality as a place to operate. And we've been fortunate that we have been there heading towards 40 years now. And so we've made our mistakes in the past. It doesn't mean we don't continue to make them. But we actually also have really a depth and a history of engagement with local communities that it's backed by a real track record and a real understanding of what is most important to these local communities and that's really what drives the conversation first and foremost from that comes your relationship with the local provincial governments and we've spent a huge amount of time understanding exactly what is important locally and and also educating there's a big education process has to go on sometimes about what it really means to invest in a lithium project and what kind of commitments we need back from communities and governments and then of course there's the federal government which is the one that has most visibility and changes the most but Perhaps when it comes to expansions has maybe the least direct impact on us with regard to decisions and operating. Most of it really is at the local level, conducted at the local level. I do believe that some of the policy moves that have been made in Argentina lately, I think there's been a union of the northern states. who are wisely acting, which is where really all the lithium resources are, are looking to work together to create a cohesive structure to support lithium development while also putting in place appropriate standards, environmental and otherwise. And I think we also see increased focus from the Argentine government, recognizing that there's a huge benefit to them of encouraging direct investment into Argentina and taking the steps that they can to make this more predictable for us. So, you know, in the end, the decisions in this space come down to Do you believe you can operate there in the long run? And I think our history shows that we have been able to. And secondly, is the resource of a high enough quality to justify investment? And we absolutely believe that it is. Great. Thank you.

Your next question is from Stephen Richardson with Evercore.

Good afternoon. I was wondering if you could talk a little bit about the expansion capital program, the $100 million of growth capital this year. Perhaps if we get a little bit more detail on proportionally the expansion at Bessemer versus the phase one expansion in Argentina. And also, you know, any insights on, you know, how much of those programs, particularly in Argentina, had already been started before you did suspend operations last year? And again, not asking to guide on 2022 at this point, but, you know, is it a fair expectation, considering you do both these expansions, Argentina, that the growth capital is kind of similar over the next two years?

Sure. Let me try, and I'll probably ask Gilberto to jump in with some specifics, but just a couple of points. Bessemer City is by far the smallest. It's a relatively small capital that they need to spend in Bessemer City, and so most of the spending is Argentina-focused. And you can really sort of break Argentina expansions always down into three or four buckets. You have what I call permanent infrastructure, which is things like gas pipelines and water pipelines and water treatment facilities, etc. You have temporary infrastructure, which is you know, logistics and shipping and camps for the workers and so on and so forth. And then you have the productive assets, which is a combination of, for us, our selective absorption columns, our small ponds that we build and our lithium carbonate plants themselves. And the state of completion of each of those for phase one It is a little different. It is generally, frankly, largely complete. The modules are largely now in Argentina, but there's the labor and the indirects to construct them. The water pipeline is majority, but not completely complete. And so it's more than 50% complete that needs to be finished. And the water treatment facilities, again, in a similar place. And so what you're going to find is that much of the spending is on really finishing previous work, which is why for phase one, we find most of that spending coming through in the back half of this year, because just bear in mind, it's actually pretty difficult to do a lot of construction, sometimes given the weather conditions in our summer and their winter up there. So into the back end of this year and into the start of next year, at which point phase two will start to roll in. which will clearly require more capital. So we'd certainly expect spending in 2022 to be higher than it is in 2021. And, of course, you always get a lag on the spending. So we tend to find that, as you've seen in our capital numbers recently, although we've stopped some of the programs, things like demobilizing and remobilizing and costs like that, you do get a kind of a lagging effect on the actual cash outflow as well. So some of that capital spending is quite likely to run, you know, all the way through late 23 and maybe even into 2024, by which point we actually will have been up and running and generating cash flow from these assets for a period of time. Gilberto, is there anything you would add to that?

No, Paul, I think you covered all the points precisely.

Very, very helpful. and then paul on the on the question about funding i totally appreciate your previous answer in terms of trying to find you know that you have multiple opportunities and multiple options here in terms of capital and you're looking for one that gives you flexibility but also the best outcome for your shareholders can you talk a little bit about um you know a desire there clearly is you're running this process at uh namaska and uh we hope to get some clarity on that later in the year um But how much is it, you know, a desire to kind of, at least from everything you've laid out today, you know, have a kind of global or a total funding solution for everything you're trying to achieve? You know, all of this, all of the above. And I guess as part of that is, you know, is project financing or something more, you know, customer financed conducive to a project like Namaska? Or, again, just wondering if you could talk about, you know, that evaluation process.

Sure. Great question. And yes, I think we do want a holistic view as to how we're going to finance this. We don't want to keep jumping from short-term need to short-term need. I don't think that's in anybody's interest. There's no doubt that different assets can have different financing profiles within that broader portfolio. Clearly, You look up to Canada, we have a couple of partners up there that want to put more capital to work at the asset level of various types and versions. We certainly have customers that understand that there may be a significant advantage to them in committing capital in order to secure supply. And as we can point them to specific expansion projects and programs, there's absolutely no doubt that they are, at least today, at least interested in seeing how their capital deployment programs might help secure them an advantage in that sense. I mean, just to give you an example, the Bessemer City line that we're building, I think we can find two or three different customers or potential customers that would love that to be dedicated to them and that have certainly expressed a willingness to engage with us around capital contribution in order to achieve that. So there's lots of different conversations that can happen. Of course, just because a customer wants to do it or just because a partner wants to do it doesn't necessarily mean it's going to be in the best interests of our live-in shareholders. And that's sort of really what I'm talking about when I say we will be patient and we will form a broader view about what the best package is, not just on an asset-by-asset basis, but ultimately what gives us the best risk-adjusted cost of capital with all of this.

Thank you very much.

Your next question is from with Raymond James.

Thanks for taking the question. I cannot help asking about the COVID crisis in Argentina right now and how You know, it's been more than a year. You've had to adapt your operations there, of course, to social distancing, but it's gotten much worse in the last four to six weeks. How have the kind of physical assets been adapting to that?

You know, it's an interesting challenge for us because I think there's a couple of things that we have to bear in mind. Perhaps as much as any country, Argentina has a concentration of cases in one particular location, which is in and around Buenos Aires. And that doesn't mean there aren't cases everywhere else, but But in many places, including where we operate, there hasn't been that same concentrated outbreak. But there have been community outbreaks that really are quite scary for those local communities. And we talked before about around our facility, we provide medical support. We do have an airplane. We have ambulances. We have good medical facilities because it is so remote. And so we're able to support people. the province of Catamarca. And we continue to do that and help them think about it. We also have helped work with them on good protocols. As a chemical company used to dealing with safety, I think we had a head start relative to many others. And so we've worked again extensively with them to make sure that they understand what what they can do and what we can do together to help keep our employees and the communities safe so we've changed things like um you know our employees now instead of sharing rooms when they're on site get their own room to themselves we've uh we've changed the the social areas to be more outside where possible or we've limited and restricted numbers of people that can be in one place We have very strict protocols around what we do with people before they're even allowed to get on a plane and come up to the salar, and same on the way back. When it comes to the expansion programs, we are fortunate that if you've ever been up there, it's quite a big open space. We are able to completely separate the construction teams from our operating teams, and we'll continue to do that. We do things like ask our trucks, et cetera, not to stop in local communities as they come through. It's really lots of small things that together are designed to both increase the wheel safety but also people's confidence in what we're doing as well.

And maybe the same question in relation to your operations in India, which if Argentina is bad enough, I suppose India is even worse than that.

Yeah, you know, our potential plant is relatively small, a very small handful of employees and a small part of our business, but that doesn't obviously matter to anybody who's working there. And so, again, you know, we've been very, very... We have global standards, and so the fact that the plant is in India or in the UK or in China or in Argentina or US doesn't really matter to us. The standards are the same. The way we tackle them may be variable based upon the specifics of a location there. But we've done the same. We've broadened gaps between shift handovers. We've... run fewer people in the plant. We've kept more social distancing. With all of our plants, we do have programs to provide local community support in whatever way we can. I mean, clearly the sheer scale of the problem in India means that whatever we do is by definition going to be relatively small relative to the needs of the communities. But we do provide funding, provide resources, distribution of PPE, et cetera, where we can.

Thank you very much.

Your next question is from P.J. Jubicar, Wood City.

You talked about converters in China and breakeven profitability. It seems like they never made any money, ups and downs. So if they were to renegotiate their contracts, as you suggested, and set those contracts higher, given what's happened to Spodumene and all that, Does that benefit lithium producers if the converters were to raise their pricing with the final EV companies?

So, you know, we've discovered this is a tough business, and that particular segment of our business is a tough one to predict. But I think if you believe that nobody is able to run in perpetuity at a cash operating loss, And we've certainly seen evidence at the back half of last year that many China converters, despite $400 spodging, that's assuming they can have any, were in fact closing down facilities for inability to even cover their cash costs. So I think there's a couple of dynamics at work, PJ, that are really important to understand. Some are very short term, right? I mean, ultimately, if a customer turns around and says, look, I just can't, I'm not buying unless you add X to the price. then the customer has two choices. The first choice they have is to accept it. The second choice that they have is to go and get their lithium from somewhere else. And there's a massive shortage of available hydroxide and carbonate today. Some of this will likely abate as we get out of certain seasonal periods in Asia and new plants come online. But the truth is that there is a significant shortage of availability of material, particularly the right type and in the right place. So it's hard for that customer, I think, in any volume, especially if what they're using needs to be qualified. I mean, usually with a third party, then that's just not an option for them. I think the second impact of this will be, I suspect, many people will ask the question, how big a part of that lifting portfolio do they want such a contract to be? I think you almost do this to yourself if you turn up at the trough of the market and then try and sign a multi-year contract at a fixed price at that point in time with an unproven producer whose material isn't qualified. I mean, you're layering so many uncertainties on there. That's not to say that isn't a valid part of what your procurement portfolio might look like. But I think people might think differently about how much of their portfolio they will allow. And I think if they really do want fixed and predictable prices, they're going to force to become more focused on those of us that are fully integrated. And so market prices of feedstocks don't really impact our decision at all. Or they're going to have to accept more market-based pricing. And I think even there, by the way, I'll just throw one more point out there. I think the way that the China converters have bought spodumene concentrate, the way that spodumene producers have sold that concentrate has all been designed to share risk, right? And so as the price of spodumene concentrate goes up, you know, the lithium chemicals go up, the concentrate price goes up, and same in reverse. And so in theory, at least, it provides some protection for both partners, certainly for the converter. But what it really does is create these spiraling effects where an increase in the chemical price pushes up the concentrate price which means that the price of lithium has to go up to cover that, which means the spodumene price goes up. And I guess the opposite happened on the way down over the last couple of years until the spodumene producers stopped producing. And I wonder if the same will happen in the other direction, because what customers are really going to see is that signing up for this kind of structure is just adding price volatility. It's not bringing predictability. It doesn't bring many benefits. And all it means is that you're going to get much more rapid price spikes and drops when they come.

Okay, thank you with that. And then, you know, there was a big merger in Australia with Galaxy and AuroCobre that may be good for the industry with this consolidation. And I know you want to diversify your footprint at some point into raw asset as well. It may not be possible for you right now, but I trust that you know how to raise capital, Paul. So any thoughts on diversifying your footprint?

You know, I think we've been pretty open that from our perspective, where the lithium comes from is not our primary concern. What we care about is, is it a good quality resource? And do we have the capabilities to develop it? And increasingly, is it in a location that makes sense, either for us to operate it or for customers? We fundamentally believe that you need to be integrated. There's no way around it. You're not doing yourself any favors in our view. by building a facility that produces an intermediate step in the process, whether that's some form of crude carbonate, as I've heard it called, or spodumene concentrate. But the reality is that building, for example, a hydroxide plant at 14,000 feet above sea level doesn't make sense for many reasons. Building a lithium hydroxide plant in some parts of the world, where maybe you're remote, you don't have low-cost access to the necessary chemicals, to the necessary power, And where capital may be more expensive may also not make a lot of sense. So for us, yes, we are keen to diversify. That diversification, though, is frankly more resources and more geographies rather than necessarily new sources, new brine, new hard rock. It's much more about the bigger picture, about what are they all in economics of a resource that we can add and does it fit with our customer profile, our capabilities, and ultimately our strategy. Great. Thank you.

Your next question is from Joel Jackson with BMO Capital Markets.

Hi, good afternoon, Paul. As far as on the strategy piece, if you look at what we thought or what you thought live it might look like a few years ago and look at your expansion, be more integrated hydroxide. You know, now certainly going forward, as we get to 40,000 carbonate, 40,000 tons of carbonate, you're looking at not having as much hydroxide. So obviously, to start, you're thinking, you know, having more surplus carbon than you would have thought before. You know, you touch on some of those prepared remarks, but can you sort of talk about how that reflects, you know, what you would have thought the market would have looked like three years ago versus now, some different capo formulations? the market, the regional balances, you know, whatever you think, you know, maybe led you to think you should be longer-term in action.

Yeah, you know, look, it's hard to kind of cast your mind back so far. As I said at the start, you know, three months goes in five minutes, but it also feels like a lifetime ago in terms of how much happens in that period of time. You know, I think for a start, If you go back to our original forecast when we did the IPO, by 2025, we had 55% of the market being lithium carbonate. So I don't think anybody can accuse us of shifting tack when you say, oh, you're now saying carbonate is going to be important. We've always believed it will be important and will continue to be important. While I didn't necessarily predict the rise of LFP, I think we always said high nickel does not make sense for many, many, many applications, whether that's stationary storage or certain entry-level vehicles or shorter-range vehicles. But in the same way, LFP and low nickel also doesn't make sense for different reasons, whether it's the ability to gain sufficient range or how they perform in the different weather conditions, et cetera. of raw material feedstock. And we still continue to believe that. I suspect, frankly, that if we end up at the end of 2024 with a picture just like the chart that we showed you, I'll kind of be a little bit surprised because I do expect customers to really start pushing us hard to build more lithium hydroxide capacity. I don't want to get myself in a position again where I build out my hydroxide ahead of my carbonate capacity. And so I do think there will be you know, really meaningful conversations with our customers about, you know, how much lithium hydroxide they will need. But frankly, I also think many customers, and we already see this happening a lot, Kind of liking this idea that we're long carbonate and that we can switch between the two because I think that's a change to me that I wouldn't necessarily have predicted where they're starting to look out there and say, look, maybe I need to have access to both because I also need to have that flexibility depending on what battery technology I'm putting in what part of the world because that's evolving as well.

So if I ask, sorry, children, COVID, sorry. If I ask, then we'll follow up on that. So maybe what's different now is, you know, you have more confidence in the margin you can get from carbon in Argentina. And even if the capex is maybe three times higher to do carbon in Argentina than that hydroxide circuit in the States, you have more certainty in the margin you can get in Argentina than what might happen in hydroxide. Does that make sense?

It does, but I'm not sure I necessarily phrase it that way. I don't think it's about a confidence in the market. I have a lot of confidence that carbonate pricing will be more volatile than hydroxide pricing. We've seen that historically, and I don't really see any change to that in the future. I think there's no reason why carbonate pricing can't go through some really crazy spikes, but also, as we've seen, why it can't fall very low. I'm very confident that there's never been a time when we've not been able to produce lithium carbonate at a price that at least covers our all-in costs. And hydroxide is a little bit more difficult. Hydroxide is more difficult to make. The customers are more demanding. I think it requires really a real commitment from you as a supplier. You don't come in and out of hydroxide because if you do, you'll be in the bottom end of the market selling for non-battery space before you know it. You kind of can come in and out of the carbonate market because it's big enough to allow you to cherry pick. It's big enough to allow you to take advantage of short-term opportunities and deep enough. And hydroxide just isn't. You know, all the growth in hydroxide, all of it, is in battery-qualified material. And ultimately, very few people are going to be willing to keep changing their hydroxide suppliers in any meaningful way. So, you know, maybe I would describe it as we have a lot of confidence that we can make hydroxide. It's up to customers to step up and demonstrate, though, that in the long run, they're willing to make the commitments to us, justify us making the conversion investments. It's really as simple as that. Thank you very much.

Your final question is from David Deckelbem with Cowan and Company.

Good afternoon, Paul and Gilberto. Thanks for squeezing me in. Paul, I wanted to go back to one of your earlier comments. One was just on, you talked about offloading the customers with whom you've previously qualified for battery grade materials. Should we presume then that when Bessemer City is up and running that you would be immediately selling battery grade, that you would be qualified already there, or would there be a lag with that plant?

There was always lag, and I'll tell you why in a moment. The length of lag is largely a function of how desperate the customer is for the material. Generally speaking, you can only qualify material once the plant is up and running in its full production phase. You don't qualify off pilot material, you can you know, initial samples. The customer's qualification process doesn't work that way. And not only is there qualification, there's location audits and various standards that we have to meet at those times. And you just can't do that until it's up and running. I think by being an existing customer and by having had the conversation with them that their future material will come from this location, we can engage with them earlier to make sure they understand what's going on and what's happening and allow them to do some of their work in advance. So it will shorten the process, that's for sure. But ultimately, it will still require some period of qualification with certainly the demanding customers that we expect that plant will ultimately be serving.

Thanks for that clarification. And just my last one is just, The expansion projects that you've announced, I know we were all sort of conditioned to expect these. I'm curious if you all maintain the same flow sheets that you had before you sort of paused activity, or if there was other considerations of perhaps compressing some of these phases. And perhaps I know that there was a there's a tire for a modular design that's perhaps cash flow oriented. But, you know, was there some other tire kicking around compressing this timeline a bit?

No, there's always tires that we kick. I would describe it as follows. I think the flow sheet here is really the one we expected. Phase one really benefits from the fact that we've done a lot of the work already. Phase two benefits from the fact that it piggybacks on the infrastructure, largely most of the infrastructure, whether that's camps or water pipeline, et cetera, or the gas pipeline, that's already in place. And so what's left to do is just quicker. It's as simple as that. In terms of tie-kicking, look, I think you should think about the next phase of expansion up to 60,000 tons where we are running, I think, some quite innovative processes and ideas. to do right now, which we will start testing out during this expansion phase, which will do things like allow us to use less water, to allow us to use less carbon, not less energy, but maybe some more renewable energy up there. And it's not easy when you're up there to just plug and play a solar panel, for example. But there's a lot we can do and a lot that we're testing and taking a look at that is really designed largely to improve the sustainability profile of those operations and make sure that what we do actually can be there in 30 or 40 years and still operating. And so we don't just sit there and assume we cracked the code and got the best possible answer to this. But I think for phase one and phase two, the flowcharts that are in place really replicate what we do today in the vast majority, again, with some sustainability upgrades included. But I think it's the next two phases that if we are to make changes, we'll see the biggest changes.

Thanks for that. I appreciate the time, guys.

Thank you. And I will turn the call back over to Mr. Daniel Rosen for closing remarks.

Great. Thank you, Erica. That's all the time 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 LiveIn Corporation first quarter 2021 earnings release conference call. Thank you.