Livent Corporation

and welcome to the first quarter 2022 earnings release conference call for LiveIn Corporation. This conference is being recorded. 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, Joelle.

Good evening, everyone, and welcome to LiveIn's first quarter 2022 earnings call. Joining me today are Paul Graves, President and Chief Executive Officer, and Gilberto Antoniazzi, Chief Financial Officer. This live presentation that accompanies our results, along with our earnings release, can be found in the investor-raised relations section of our website. 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. Given the number of participants on the call today, we would request a limit of one question and one follow-up per call. 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 least those factors identified in our relief 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 investor relations website. And with that, I'll turn the call over to Paul.

Thank you, Dan, and good evening, everyone. Today's prepared remarks are going to be a little longer than usual, given the large number of important and exciting developments we want to cover today. LiveOn had a strong start to the year, reporting first quarter 2022 results that greatly exceeded expectations, highlighted by adjusted EBITDA that was almost double the Q4 2021 results. The company benefited from higher realized pricing, supported by growing customer demand, and increasingly tight lithium market conditions. While published lithium prices were higher in all regions and for all products quarter over quarter, the most important feature of our Q1 performance was the ability to take advantage of and actually realize these higher prices across our customer portfolio. This reflects the benefits of our diversified offering and our business model. with stability and predictability provided by our strategic customers' long-term contracts, coupled with exposure to rising market prices provided by long-standing customer relationships across geographies and product ranges. With our expectations for pricing through the rest of 2022 remaining similar to today, Livent is significantly raising its full-year guidance ranges. We now expect adjusted EBITDA to be in the range of 290 to 350 million for the year, which at the midpoint is 78% higher than the prior forecast and approaching five times 2021 reported results. Libent is always looking to meet the commitments asked of us by our customers, and in particular, to provide increased security of supply while at the same time significantly increasing total volumes. As part of this ongoing process, today Libent is announcing multiple additional capacity expansion plans for both lithium carbonate and lithium hydroxide. At the conclusion of these expansions, Libent expects to reach 100,000 metric tons of total carbonate capacity by the end of 2030, or roughly five times today's levels. Additionally, Livent expects to at least double its existing hydroxide capacity of 25,000 metric tons by the end of 2025, excluding Namaskar. We announced yesterday that Livent has reached an agreement to double its stake in Namaskar, an integrated spodumene to hydroxide project in Quebec, Canada. Livent will own 50% of Namaskar when this transaction closes, which is expected to occur in 30 to 45 days. Namaskar is a highly attractive asset in its own right, with a favorable projected cost position, being well located in North America, and having access to low cost and sustainable hydroelectric power. Namaskar brings a number of additional strategic advantages to Livent, but Livent can also bring significant advantages to Namaskar, which I will talk about shortly. Before passing the call over to Gilberto to discuss our first quarter results, as well as our much improved 2022 guidance, I want to provide some market observations on slide four. Given the public commentary on lithium lately, discussion of higher prices and tight supply should not come as a surprise to anyone. It should also come as no surprise that current price levels, both published indices and those disclosed by producers, are exceeding the already bullish expectations heading into 2022. Fundamental to this situation is not, as some have stated, a failure of the lithium industry to expand, but the fact that we have seen massive and rapid demand projections by automotive OEMs and accelerated rollouts of electric vehicles, as customer acceptance and regulatory pressures have far exceeded OEM expectations. Of the three fundamental challenges to successful migration to EVs from internal combustion engines, the first two, namely acceptable technology, and customer acceptance have largely been overcome. The third challenge, securing the supply chain, has, however, lagged far behind in the OEM's priority list. Put another way, most OEM's EV plans have been drawn up without addressing the fundamental challenges of securing long-term supply at the same rate. As a result, there's been a real rush to source batteries and, in parallel, a growing realization that there is a fundamental shortage of lithium available in the market for at least the next couple of years. There are also some specific factors amplifying this tightness in the short term and driving lithium prices higher. These include broader supply chain disruptions and challenges from COVID-19 shutdowns in China, which impact both supply and the timeline of many expansion projects, limited and unpredictable shipping capacity, creating short-term disruptions to battery production, and higher input costs and tight labor markets, especially in remote parts of the world where most production and expansion activities are currently taking place. A final and very important factor is that the inherent weaknesses of the existing China-based supply chain, which we've discussed previously, are revealing themselves. Today, non-integrated producers of lithium chemicals in China are unable to secure reliable, committed supply of sufficient feedstock. Australian spodumene producers have painful recent memories of the lack of reliability of previous fixed price supply contracts entered into with China-based customers, and they are understandably moving to uncommitted, auction-based pricing and supply mechanisms. And as many Australian miners look to integrate into their own downstream conversion facilities, either directly or in partnership with others, this structural issue will not likely improve anytime soon. We've seen published prices of all lithium products dramatically rise. By the end of April, the increases that were largely China-based and carbonate-focused in the first couple of months of the year started to drive prices higher outside China and in other lithium products. The reference price of hydroxide in China closed the gap with carbonate by the end of Q1, while the price of methyl exceeded that of carbonate on an LTE basis. And we also see reference prices outside of China moving up quickly, largely as historical supply contracts expire and are renegotiated. These movements of otherwise unconnected products and regions make sense when you look at the realities of the China supply chain today. In the last few quarters, for converters facing scarce input availability, the decision of how to maximize profit was very simple. Switch your operations where possible to make and sell as much carbonate as possible. As a result, production of hydroxide and lithium metal only makes economic sense to them if the price of these products climb to equal or higher pricing on an LCE equivalent basis. But by rapidly shifting production to the highest margin products in this way, Chinese converters are amplifying supply swings and therefore price volatility. The hydroxide price premium to carbonate has now returned in some parts of the market. And given the well-known challenges in producing and getting qualified for battery-grade hydroxide, we believe many producers will struggle to shift production back to hydroxide as easily as they moved into carbonate. This is especially the case in higher-end battery and auto OEM applications, where the time and effort needed to qualify supply requires a commitment from the lithium producer to remain a supplier for long enough to justify that effort. What is even more clear is that forecasted demand for lithium growth, which shows no signs of slowing down, continues to outpace any reasonable projections of supply increases in our industry. Given today's price levels, it is no surprise there's been a flurry of expansion announcements and activity. However, given the well-documented challenge of lithium expansion, as well as the time and capital intensity required, it's very hard to imagine a structural supply shift in the market over at least the next few years. While some expansions are easier than others, particularly when it comes to existing hard rock operations, It is the success of integrated greenfield projects like Namaska that will be critical to reestablishing supply balance. In this environment, there's understandably a higher focus from lithium consumers, particularly OEMs, on securing battery-grade lithium from proven suppliers. Now, this sounds easy, but it is, in fact, constrained by some other unusual features of the current battery supply chain. Perhaps most important is the fact that many OEMs today are exposed to battery supply agreements where the lithium is purchased by their cathode and battery partners. And these partners control not only the price decision, but also through the qualification process, the supplier selection. However, they then pass these material costs directly onto their ultimate customer, the OEM. Now, this is a situation that cannot continue indefinitely. However, we do not expect supply chains to shift to a more logical OEM contracting structure inside the next two years. given the battery supply commitments already in place. But we do see OEMs becoming much more involved in the battery material procurement conversations, and they are seeking to sign commitments directly with battery material suppliers that will become far more important in the market in the 2024 or 2025 timeframe. On that, I'll turn the call over to Gilberto.

Thanks, Paul, and good evening, everyone. Third is slide five. We reported first quarter revenue of $144 million, adjusted EBITDA of $53 million, and adjusted earnings of 21 cents per diluted share. Versus the prior quarter, revenue was up 17%, with slightly lower total LCE volume sold and a negative product mix, more than offset by higher realized pricing across all of our products. First quarter adjusted EBITDA was roughly double the result from just last quarter. This was due to a meaningful step up in lithium prices from new contracts entered into for 2022, as well as our ability to take advantage of higher market prices that exceeded expectations heading into the year. Given the current environment, Liven has a significantly improved outlook as we look to the rest of 2022, as shown on slide 6. The market continues to move rapidly with respect to prices. And while realized prices were higher in the first quarter, we expect them to be even higher in the remaining quarters. For Liven, this impact is largely on the smaller volume, uncontracted, and market-driven portion of our business, which has far exceeded our initial assumptions. For the full year, Liven now projects revenue to be in the range of $745 to $845 million, and adjusted EBITDA to be in the range of $290 to $350 million. At the midpoint, this represents growth of 39% and 78% respectively versus the prior guidance range, and growth of 89% and 360% respectively versus the prior range. Our guidance range for the full year have also widened compared to last quarter. This is due to just how quickly the market has moved with respect to lithium prices. While we feel confident that average realized prices will be higher in the remaining quarters versus the first, we also acknowledge the higher volatility and unpredictability in the market today. On slide seven, Given the significant change in our guidance in just three months' time, we provide revenue and adjusted EBITDA bridges to highlight the drivers of our increase in 2022 guidance at the midpoints. As a reminder, we expect 2022 total volume sold on an LCE basis to be flat versus 2021. As no meaningful volumes from our capacity expansions are expected to be commercially available until 2023. The revised guidance does not assume any change in volumes compared to last guidance. This means the improvement is driven by meaningfully higher expected market prices across all lithium products, and in particular reflects confidence in our ability to navigate high input costs, especially in lithium metal. With respect to pricing, we classify the major increases into two categories. Our market price influence hydroxide and carbonate volumes in our butyl lithium and high-fuel metal businesses. Roughly one-quarter of our hydroxide sales volumes and all of our carbonate sales, albeit small volumes, are subject to periodic pricing reviews that allow for more direct exposure to market prices. On the subset of volumes, we're expecting around $130 million in price improvement versus prior expectations. For the butyl lithium and high purity metal, we committed volumes to existing customers this year, but shifted price setting from an annual to a more short-term basis. Recognize the difficulty in accurately predicting the lithium metal raw material prices to which butyl lithium was exposed. This price-setting change was driven by a different dynamic than hydroxide and carbonate, as this is where we are seeing significant and rapid cost increases in key inputs. Our focus for our metal-based businesses in 2022 has been on maintaining profitability. While price is expected to be stronger in the order of $95 million, it's largely a pass-through of rapidly rising costs of feedstock materials. particularly lithium metal. As a fully integrated producer of lithium products with predictability around cost and security of supply, LIVEN is able to build its core business around long-term supply agreements with firm commitments and predictability on pricing. However, as you can see in our guidance, we still retain the ability to take advantage of higher market prices supported by our position in key strategic markets and regions. Additionally, the nature of our operations and ability to deliver both lithium carbonate and hydroxide to customers provide us with a differential position and great operational flexibility. Despite the wider guidance for this year, at either end of the range, Liven will see a mature increase in profitability and cash flow generation. And as we look to the next few years, this will be enhanced by additional production volumes coming online. Additionally, as a result of evolving business mix and internal corporate structure as a standalone public company, Liven expects a lower effective tax rate moving forward in the range of 16 to 20%. I will now turn the call back to Paul.

Thanks, Gilberto. We've had ongoing expansion projects in Argentina and the U.S. for some time now. But we know that we must continue to grow our production capabilities even further. Our customers tell us this, sometimes privately, sometimes publicly. To be clear, these private conversations are different to prior years. Lithium pricing may have been one of the first and maybe only topics to be put on the table. Existing customers and an increasing number of OEMs are coming to us because they now realize they must take a more proactive role in securing long-term supply. and therefore want to partner in a way that goes beyond traditional purchase agreements. And more importantly, driven by multiple recent supply letdowns, especially from new entrants who have yet to produce, OEMs are prioritizing new long-term supply agreements with quality, proven, and established producers like Liban. We've already hosted multiple existing and potential customers at our operations in the US and Argentina in the first few months of this year, something that very few have expressed interest in historically. And we expect to host more throughout this year as we look to show them what it actually takes to expand and what they can do to help us accelerate these expansions. Before going into detail on all of our announced expansion plans for both lithium carbonate and hydroxide, You can see how this translates into total capacity growth through the rest of this decade on slide eight. For carbonate, we plan to expand our existing resource in Argentina up to 100,000 metric tons of capacity by 2030, or roughly five times today's levels. Our operations at Ombremuesto have produced for a long time, and our data suggests we have many decades of resource life ahead. Our unique proprietary process for lithium extraction results in a very competitive cost position and a leading sustainability profile. Additionally, because we've been operating at the Solar for roughly 30 years and are replicating the existing processes that we use today, we believe our current expansions there carry none of the process or flow sheet risks that are inherent in many other projects globally. For hydroxide, we expect to reach 45,000 metric tons of capacity by the end of 2023 and at least 55,000 metric tons by the end of 2025. And our investment in Damascus provides exposure to up to an additional 34,000 metric tons of lithium hydroxide, which means that on a 100% basis, we're potentially looking at 90,000 metric tons of hydroxide capacity by the middle of this decade. Beyond this, we will continue to evaluate additional expansions globally when supported by specific customer commitments. Still on slide A, you will notice that we characterize our existing operations as 1A and 1B, reflecting the fact that our carbonate and hydroxide operations today function as an integrated network rather than each a standalone asset. As a reminder, you cannot add our carbonate and hydroxide capacities together when projecting sales volume. So when netting 45,000 metric tons of hydroxide capacity against the livened carbonate required to feed it, you'll see that in the after years we expect to have a meaningful amount of available carbonate remaining for sale. A key consequence of this integration is that a decision to make and sell hydroxide within this network is equally a decision to not sell carbonate. At some point in the coming years, therefore, we will need to make decisions as to whether we wish to sell that carbonate directly or to invest in further hydroxide conversion. We've been talking for a while now about our desire to have meaningful exposure to all forms of lithium. And therefore, we do expect to be a supplier of greater carbonate volumes to the market over time than we have been historically. Setting to slide nine, you will see the three separate carbonate expansion stages we have planned at our resource in Argentina. Livent remains on schedule with all previously announced timelines for its first expansion. This can be viewed in two phases, both using the exact same direct lithium extraction process that we utilize today. In the first of these two phases, Liven will have 10,000 metric tons of lithium carbonate capacity by the first quarter of 2023. In the second phase, an additional 10,000 metric tons of lithium carbonate capacity will be in place by the end of 2023. In less than two years' time, Liven expects to have effectively doubled its total carbonate capacity. There is meaningful onsite construction and installation currently underway for this expansion, and we expect to complete key infrastructure over the next few months. To complete these two phases, Liban anticipates roughly $450 million of total capital spend remaining between 2022 and 2023. For the second expansion, Liban announced last quarter that it began preliminary engineering work using the exact same direct lithium extraction process. In doing this, it became apparent that this expansion can provide an additional 30,000 metric tons of carbonate capacity by the end of 2025, or 10,000 metric tons higher than previously anticipated. This incremental production is made possible by reengineering the front end of our flow sheet with respect to how we manage fresh water, as well as rethinking how we tackle the late stage brine evaporation step. By doing this, we will improve our overall lithium yields and reduce average water use intensity for our current and future operations. while freeing up our existing evaporation plants. To be clear, the key DLE extraction and carbonate production processes will be unchanged from our existing operations. For capital requirements, we anticipate spending to be in the range of $500 to $700 million, with an initial outlay beginning late this year and a ramp-up of spending expected in 2024 and 2025. Total spend is expected to be lower than the first expansion, as Livent takes advantage of the infrastructure built to support future expansions. However, some of this benefit is offset by additional investments we will be making as part of this expansion to further improve the sustainability profile of our operations, particularly implementing mechanical evaporation and adding closed loops to increase water reuse. As for further expansion of that resource in Argentina, LIVEN is evaluating a third project that adds up to 30,000 metric tons of additional lithium carbonate capacity. Different from the prior expansions, this would deploy more conventional evaporation-based processes, which reduce both carbon intensity and freshwater use. Additionally, it should require significantly less capital versus prior expansions, given the potential to repurpose our existing ponds that would no longer be needed for our expanded operations. Following this, LIVEN believes it can reach total capacity at its operations in Argentina of 100,000 metric tons before the end of 2030. While we do not believe we would be constrained from additional expansion beyond this point from a resource standpoint, it is ultimately the necessary infrastructure and the remoteness of our location that will dictate where we go from there. Turning now to slide 10 on hydroxide, LIVEN is nearing completion of a 5,000 ton expansion at its existing site in Bessemer City, North Carolina. There's minimal capital remaining to complete this unit and commercial production will start in the second half of this year. This will bring our total hydroxide capacity in the U.S. to about 15,000 metric tons or equivalent to our current production capacity in China. And because this is a modular replication of our existing carbonate fed process, We expect the qualification and the ramp-up timeline with customers to be fairly short. We retain an ability to add further hydroxide capacity at our site in Bessemer City as needed. We also announced that we are adding another 15,000 metric tons of lithium hydroxide capacity at a new location in China by the end of 2023. Given our proven track record of successful hydroxide expansion in the region, We have confidence in our ability to execute this expansion quickly and capital efficiently. The decision to proceed with this expansion was straightforward given how concentrated cathode and battery production is in China today. It will allow us to serve our growing customer demand in the region, as well as provide us with location diversification inside China. Libent is also evaluating building a 10,000 metric ton plus recycling-focused plant, which takes recycled lithium material, likely in the form of crude lithium sulfate or crude lithium carbonate, from third-party recyclers and converts it into battery-grade lithium hydroxide. This would be an inherently different business model than what we operate today. We would not be providing the lithium feedstock as we do with the carbonate fed units we operate today And we expect that it would be closely linked to our existing hydroxide customers as an additional service we provide solely to those customers as they look to reuse, where possible, the lithium they already own that resides in end-of-life batteries. While the location of this plant is still to be determined, there is a high likelihood it would be in the US or Europe. The company is actively evaluating multiple partnership and strategic funding opportunities and believes this could be in commercial production as early as the end of 2025. We've lined up well with the timing in which some of these streams will start to become more readily available. Following these expansions, Liven expects to have total lithium hydroxide capacity of 55,000 metric tons, more than double its current capacity of 25,000 metric tons. There's plenty of work to be done over the coming quarters, and we look forward to keeping you updated on all of our progress. And of course, this excludes Namaska, which brings us to slide 11. Yesterday, Liban announced that it will double its ownership interest to 50% in Namaska by issuing 17.5 million shares of its common stock in exchange for a 25% stake. Investissement Quebec, an investment group owned by the government of Quebec with a mandate to provide strategic capital to facilitate investments in the province, will remain hold of the other 50% ownership interest in Damascus. Following this transaction, the total cost for Lyman's 50% ownership in Damascus will be approximately $400 million. Livent is committed to the future success of Namaska, and our increased ownership reflects this commitment. As I mentioned earlier, Namaska brings multiple benefits to Livent. These include resource diversification, further improvements to our green production credentials, and an attractive location, a location from which to serve growing regional demand in North America and Europe. The localization of supply chains becomes a bigger focus for our industry. But perhaps even more important is the benefits live and will be able to bring to the master following the closing of this transaction. We will be able to more easily support the master by providing technology and operational know how reducing the inherent risk that new entrance face in the battery quality hydroxide market. This will help to ensure that the master delivers the quality products that customers are demanding We will be able to support Namaskar's commercial strategy, bringing far greater market intelligence to Namaskar than they would otherwise have access to. And we will be able to start to offer customers higher volumes and a further diversified supply chain with significantly lower sourcing risk for them as a result. We look forward to helping Namaskar fulfill its role as an integral part of the growing lithium battery supply chain in the Western Hemisphere. Having worked closely with the NAMASCA team through its engineering work, there's a lot to be excited about as we detail on slide 12. At this stage, we can share that it will be a large and cost-competitive asset with over 30 years of expected mine life. The project is targeting 34,000 metric tons of battery-grade lithium hydroxide capacity produced in Beckencourt using conventional conversion flow sheets and solely using spodumene concentrate from Wabuchi. creating true integration of the operations of both sites. To be clear, Namaska has no plans to sell spodumene concentrate from Wabuchi. First commercial production of lithium hydroxide is expected by the end of 2025. Total capex is currently estimated to be around $1 billion, which is consistent with the capital cost of similar integrated projects being developed, for example, in Australia and Korea today. We believe that Namaska will be an important part of the supply of sustainable, critical battery materials. It has access to low-cost, zero-carbon hydroelectric power, and is strategically located close to regional shipping ports. It is also clear that the industrial park being developed in Beckencourt will be a foundational part of ProVec's ambition to develop a global battery materials hub. There have already been multiple announcements to produce cathode-active materials at the site alongside Namaska, creating a real model for localization that we believe is essential for the sustainable development of our industry. There is also additional land available at the site in Becon Core for Namaska to potentially add future lithium capacity. Concluding on slide 13, Lyman has multiple attractive opportunities to increase production and continue meeting the growing needs of its This will undoubtedly come with a step up in required expansionary investment over the next few years. Projections for 2022 capital spending have increased to $320 million at the midpoint, or $20 million higher, which is largely a timing effect as we look to accelerate work on our expansion projects. As we look at 2023 through 2025, we estimate capital spending in the range of $1 billion, excluding any potential Namaska funding contribution required of Livent. With respect to Namaska, given our partner there and the interest from customers and lenders, we expect there will be plenty of attractive financing options available that will be put in place at the appropriate time. Based on where we sit today, we expect to fund our investments with a combination of an internally generated free cash flow, third-party debt, and other sources of capital that may include customer or government financing opportunities that are becoming more widely available. However, most of our capital needs we expect will be met by the increasing cash flow generation of our businesses. This confidence in strong cash flow generation is the result of two primary factors. The first is that starting next year, Liban will begin adding meaningful incremental production volumes. In 2023 and 2024 alone, Libent is expected to add 6,000 and 16,000 LCEs of additional sales volumes, respectively, compared to 2022. We expect incremental volumes in 2025 to be even higher than this, and for Libent's production to continue to grow through the rest of the decade. The second is that the underlying economics of the lithium industry have fundamentally evolved with higher cost resources entering the supply picture, and an acknowledgement from customers that pricing needs to support reinvestment. While prices will inevitably come down from today's levels at some point, it does not appear likely that they will be returned to the price level seen prior to this year in the next few years. And while we're not in a position to provide any financial guidance beyond 2022, As we do not pretend to have the ability to project market pricing over the next three years with any reasonable degree of accuracy, even under a wide range of potential price scenarios, Livent clearly has stronger earnings power. And as a proven and reliable operator and commercial producer of lithium compounds, we have a differentiated value proposition that we bring to our customers, our investors, and all of our key stakeholders. I'll now turn the call back to Dan for questions.

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

If you would like to ask a question at this time, please press star, then the number one on your telephone keypad. Please limit yourself to one question and one follow-up. If you have additional questions, you can jump back in the queue. To withdraw your question, press star one. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Steve Richardson from Evacor ISI.

Hello. Hi, this is Keyshawn on for Steve. So quite an impressive quarter updated guidance, but just one question in terms of guys, I think our rough math puts margins at about 40%, which is about a little bit higher for the quarter. Can you talk a bit more about your market assumptions and the guidance, not just on pricing, but also on cost? Sure. I think, um,

You know, Q1 saw some interesting pricing dynamics. We mentioned carbonate was higher to start with, and by the time we ended Q1, we'd seen hydroxide really get itself in line with carbonate, and metal prices on an equivalent basis even higher than carbonate were. So our guidance really reflects, and I think that we saw as we finished the quarter and into April, it's going to be maintained through the rest of the year. And the costs are the same, right? So the biggest cost variable we have is lithium metal, but given our pricing assumptions on butyllithium and high purity metals simply reflect an attempt to pass those costs on. sort of hedged, if you will, in terms of those extra costs. The agreements with customers are that we've been very transparent, and as we pass those lithium metal cap costs down, the customers pay for the lithium metal. So we're not expecting any fundamental, meaningful increase in costs in any other area. There are certainly what I'll call frictional costs in supply chain and logistics, et cetera, but they're all really pretty much reflected in the guidance already.

Got you. Thank you so much. And for the mask, it seems like this is a natural progression of LIVA's participation in the project. So just really quickly, just wondering why is now the right time to increase the working interest? How much capex is remaining? And then just a timing in terms of FID and other gating factors, please.

Sure. Look, timing IMA deals, this is not a market trade, right, where we just ran in and bought the shares. We had a partner in there, have a partner in there in Pallinghurst, the private equity firm. Pallinghurst took this business largely from bankruptcy to a CCAA process and took it to where it was today. I don't think there's any doubt that that was not a livened skill set. And IQ will admit it's not an IQ skill set. But we're through that phase now. And we're now into the final phases of engineering this. project. The mining work, which is not Asterent, is largely completed and we're in the final phases now of completing the engineering work for the hydroxide plant. And it just felt like to all of us a natural time for us to restructure the ownership and for Liban to take on a bigger role. The timing is pretty straightforward. By the end of this year, we will have what we require as an organization, which is a level of engineering certainty that we require to start construction. And we would expect construction, therefore, starts at the back end of this year and continues really through 2024 and into 2025, at which point production will start up and we will start the ramp-up process. Now, it's a spodumene-based process, so very different to our hydroxide carbonate processes. We do expect a slower ramp-up to commercial production. So we're not expecting, unlike our hydroxide units, which we can get up and running within a month or two, this is going to take longer, which is why you'll see us talking about really meaningful commercial volumes coming out at some point in 2026.

Your next question comes from the line of Pavel Mulchano from Raymond James.

Thanks for taking the question. Looking at the timetable of your carbonate expansion, you're looking for a plateau between 2025 and 2029. Is there any scenario where you would accelerate that third and final phase of expansion?

Look, it's possible. I think we're trying to be realistic about everything we have going on because it lines up clearly when, as an organization, we'll be focused on Namaskar. Starts up and ramp up but look, you know, I think the short answer is if we can yes It has to make sense on multiple different levels, you know You have to understand how remote this location is and what it actually takes to do these projects. It is not easy to do them and Given we're moving to a different process. We have typical. We have not used traditional conventional evaporation processes and We expect to spend a lot of time looking about how we can optimize them. The reason we've never used them in the past, multiple reasons, but not least, the yield is lower. The quality of the product you produce in that part of the world from that brine is not going to be as high as it is using our existing process. We're fine with that because it will certainly be good enough to use in our hydroxide processes. So we don't lose any value from that. But it also takes quite significant partnering with local communities, with the local government, etc. So if we can accelerate it, if the market justifies it, we will. But I think what we've put there is a reasonable, maybe erring on the side, a conservative assessment of what that phase of the expansion will look like.

Okay. And following up on Namaska, do you anticipate receiving any federal or provincial funding

uh funding you know capex rebates to help pay for development of a lithium industry in quebec you know i think everybody's looking to see what support you get from the local provinces and there were multiple levels of support that are more than just provision of capital i mean having iq as a co-investor is one i think helping secure locations helping with incentives training labor, which is obviously a key concern when an area is expanding so quickly. Certainly opportunities for us to get some tax advantages from doing that. And sure, if there are some provincial capital available that's cost competitive and makes sense, we'll take a look at that. We certainly aren't doing it on the basis that it requires that. We typically have not taken capital of that type, but largely we've not seen provinces, governments, regions be strategic in terms of how they provide that capital. But clearly, if it makes sense, we're certainly open to it.

Appreciate it.

Your next question comes from the line of Chris Capps from Loop Capital Markets.

Hi, good evening. Your line is open.

Thank you. So it's great that you can elaborate a bit more on your expansion activities, and I assume this is of tremendous interest to your downstream customers. And, Paul, so you emphasized how just this accelerated EV transition and the bullish fundamental backdrop is inducing customers to get more proactive and creative relative to conventional supply agreements. And I'm just wondering if you could elaborate on what that means with respect to agreements that you're considering. Is it a – you know, sort of a duration of a supply agreement kind of clause? Is it pricing mechanisms? Is it willingness on their part to fund? Just what sort of things are on the table at this point?

Yeah, you know, look, you know, it's an interesting one. You know, I mentioned on there, I think I heard from one of the industry consultants recently that the lithium industry has expanded its output in the last three or four years by about 4x, right? And so, We've added a lot of capacity, and yet it's just not enough. It's not enough because the OEMs are expanding even more quickly. But what the OEMs are also recognizing is that they've kind of, not all of them, by the way, but many of them have outsourced this whole process of securing battery materials to the battery chain, to the battery suppliers, to the cathode guys, et cetera. And they're now looking around and saying, okay, we need to change this. In order to change this, the biggest differences that they have, frankly, number one, they can provide the certainty. Because they know that one way or the other, they're going to need that lithium. They may change cathode suppliers, they may change battery suppliers, they may change regions where they manufacture, but they know they need the lithium. So the ability to provide true certainty really resides with the OEM. The second one is to provide price certainty. I think nobody really... knows what future pricing is but everybody knows that there's a price at which it just doesn't make sense either too low for us too high for them so the ability to structure what i'll call rational pricing mechanisms that the equally share rewards depending on what the supply balance looks like also resides largely with the oem and equally and this is important it's sharing in more detail their technology roadmaps with us. What do you actually need? When will you have recycling streams available? Which regions do you want to produce in? What is your position, your requirement, your attitude towards sustainability, to carbon content? How do you feel about investing in sustainability and production to increase sustainability? Frankly, how do you feel about investing upfront in a contract to help secure supply? All of these conversations frankly, can only happen with an OEM.

And they are starting to happen with the more progressive, more forward-thinking OEMs.

That's helpful. Appreciate that. And then I also had a follow-up on the Nebraska around the timeline. You mentioned commercial production by the end of 2025. That's for the downstream conversion asset. And I'm just curious if you say in the slide that you're looking to match the spodumene production with the conversion facility being ramped. I'm just curious how wed you are to that, if there's any scenarios where you would produce spodumene and sell that into the market ahead of the christening of the hydroxide facility. I'm just wondering about the timeline more generally as well. Thanks.

Yeah, $5,000 a ton of spodumene concentrate. You can certainly understand the temptation. So I'm not going to say never. I never say never, if you make sense. Look, the mine is clearly capable of coming online sooner. But it's important to understand that one of the key, a couple of key challenges we've seen with these projects in the past is either overbuilding a hydroxide plant that the mine can't feed, or not thinking carefully enough about exactly what that spodumene concentrate feed looks like. So we've been spending a huge amount of time on making sure we know exactly what the optimal spodumene concentrate feed coming out of that mine is, concentration as well as volumes. And the plant has been sized accordingly. It is quite likely during the ramp up phase, we will be producing more spodumene concentrate than the plant can consume to start with. However, We are also pretty confident that the mine won't run perfectly. It's a new mine, new start. So having some spodumene concentrate inventory in those early years to help manage that startup process is probably just as important as realizing a few extra dollars at that point in time. So the model certainly does not call for shipping spodumene concentrate from Quebec to China.

Let's be honest with that. It does not. Thank you.

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

Yes, good evening. Paul, what is the pricing assumption that's embedded in your 2022 adjusted EBITDA range of 290 to 350? And then related to that, can you comment on the percent of your business for which price is fixed or known this year and next year?

Yeah, I think you know we've never given price guidance before, so I don't want to break that history of ours, so I certainly don't intend to do that. You can put me back into it with a bit of math, right? When you look at what Gilberto told you about what proportion of our hydroxide is not contracted and the small carbonate volume, you know we don't have a lot of carbonate volumes to sell. Really, though, other than the contracted hydroxide volume, nothing else is set. Everything else that we have is going to be priced on a relatively short-term basis, whether that's monthly, some quarter that includes our entire utility portfolio, includes our hydroxide portfolio, into both battery and non-battery applications that is not with strategic customers. Everything else is exposed to market.

Okay, that's helpful. And then secondly, if I may... Paul, you're issuing 17 and a half million shares for the Namaska deal. And we have, you know, upsized expansions in Argentina. Now, you know, Canada's moving forward as well. And in that context, you know, would you intend to access either the capital markets or perhaps partners capital? in addition to the much stronger free cash flow that you envision over the next several years?

If you look at the next three years, if you just assume today's environment roughly stays in place, whatever that means, it is a range of outcomes. It's highly unlikely that for the next three years we would need any outside capital other than going down on existing credit agreements, credit revolvers. And even then growing in a relatively small way, because when you look at our EBITDA, you look at the growth in volume, et cetera, it just does not seem likely. It's of course possible. We've been here before, right? So let's all be realistic on this one. I think tapping into outside sources of capital, I think it's frankly more likely to be customer and partner capital, much more likely. We don't see a scenario, frankly, today where we run into where it looks likely or even possible that we run into a place where we need to issue equity. Why do I say that? Look, bluntly, if we reach that point, it probably means we're not generating as much cash flow, which means pricing isn't what we thought, which means the expansion will slow down and capital slows down. We have that lever that we are likely to pull first, to be perfectly honest. So I think customer capital, partner capital, strategic investor capital at certain assets in small ways, way more likely than capital markets in the classic equity sense.

Thank you for that and congrats on the results. Thank you.

Your next question comes from the line of Matthew Deal from Bank of America.

Thanks.

How should we think about some of the fixed costs flowing through from the startups, particularly some of the carbon inside of the equation as we move into 2023?

You know, every time you start in the facility, obviously you get that kind of drag on day one of higher costs running through. The difference perhaps that I think maybe people still struggle to understand is that there are different ways of producing lithium require different startups. We've already talked, starting hydroxide plants up made from spodumene can be quite a slow ramp up, so you do get some fixed cost inefficiencies. Starting carbonate production from brine when you're using 18 month periods in evaporation ponds is the same. Our carbonate expansion in Argentina don't operate that way. From the point at which we can kind of mechanically complete the starting production is certainly months, maybe quarters. But it's not much more than that. So while you do get a bit of a drag during the ramp up, it is not as noticeable or as pronounced as you would see with some of the other projects. So, you know, when we talk about starting production in 2023 for our first expansion, we expect to be mechanically complete sometime in Q4. And by the time we've then, you know, primed the pumps and got everything going, it's probably another quarter to get going and then another quarter to ramp up. But it's not a huge amount of time, to be perfectly honest.

Not huge drags. Thanks. And look, in the past, you'd waited for some firmer off.

Well, actually, no, I'm going to skip that one. The lithium recycling plant is a bit of a new one. Do you expect to tie in an agreement with somebody like Lifecycle or Redwood, or would it be from a battery plant? And then how do you think about the economics here? Is this going to be kind of a tolling margin for you, or how do you think you'd structure the agreements?

Yeah, let's talk about the reality of recycling. I think the one truth that people have yet to really kind of take a long, hard look at is that most of the lithium that gets recycled is already owned by somebody. And so what they're not looking to do is now sell it at a deep discount to what they paid for it. I think what they're looking to do is to pay somebody to recycle it for them, which is a different business model when you think about that. Could it be a life cycle or a redwood or similar? Absolutely. But I think it really depends on where the OEMs go. Whoever owns the lithium is going to direct this. Whoever owns the lithium... And by the way, this may include cattle producers and battery producers who have scrap and waste during their processes. They're the ones that in the end are going to have some lithium, and they're going to look around and try and find partners to help them reuse it into their systems. I saw some data the other day, or heard some data, which I thought was really in line with how I think about things as well. Recycling by 2030 could be 10% of total lithium production. which doesn't sound a lot until you realize demand up then is probably 3 million tons. 300,000 tons of lithium is going to need to be recycled. We expect largely that this will be a partnership with customers. It will be part of this partnership approach We do not expect to put live and capital to work in any meaningful way in these facilities, which doesn't mean the economics of them will clearly be, there'll be less profit coming from them, but there will be, I would expect no live and capital tied up in them. Does that make it a tolling model or some other model? Probably in that direction. Yes. But it is a very different business, but one that we just think it just has to evolve. And the truth is there aren't many out there that actually have that capability to actually turn a crude lithium stream from recycling into battery-grade lithium hydroxide. And we think that's a value that we bring to our customers.

Thank you for that.

Your next question comes from the line of Alexey Yefremov from KeyBank Capital Markets.

Good evening, everyone. Maybe I'll try a price question in a different way. Do you just maybe characterize the percentage change in price that's embedded in your guidance or kind of the upper and the lower bound of this change that you think is reasonable?

Hard to know what a percentage change is from, to be honest. But I think maybe the best way that I can describe this is we've certainly realized lithium carbonate pricing in the first quarter was probably higher than some others have announced for us. Because we don't sell as much, I think we maybe, for whatever reason, are able to drive a higher price. Maybe it's our customers. But if you carbonate pricing, compared to the flaws that we saw, the really low prices that we weren't even selling at, it's probably about seven or eight times that price that we were seeing sometime in 2020. And hydroxide has caught up with it, frankly. It's caught up with it and going past it. It's certainly up in the – it's hard to be precise, to be honest, without giving you specific guidance. But just assume that it's meaningfully higher than we've ever seen in the past.

Okay, fair enough. Thanks, Paul. On Namaska, I guess you've done a lot of work in understanding the economics of the project already. Do you have an idea of where cash costs could come in, either for spodumene or oralin for the hydroxide?

Yeah, we do. You know, we've been involved in this project for a long time. There's a steering committee in Damascus that we basically sent some of our employees to work on. So we do have just a huge amount of insights into Damascus. We're certainly not going into here with what I call blind hope. I don't think there's ever been a more diligent investment that we've ever made. Um, we do know where the cash costs are likely to come out. I think it's like anything, right? You know, there's so many different definitions of cash costs. We don't, we do care about the spodumene cost clearly, but it's the integrated cost that we're largely looking at. And so, um, you know, when we look at it on the cost curve and we look at the cost curve in 2026, when the plant's going to be producing, our best estimate of where it sits is pretty much bang in the middle of the cost curve with all the brine guys to the left, um, and the non-integrated Chinese converters all the way to the right, and a few, not many of us, frankly, right now, integrated spodumene converters sat in that middle slug, and that's where we expect it to be.

Thanks a lot.

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

Hey, Paul. Joel. First question, two parts. Looking at the slide where you project, slide eight, you're projecting your capacity, year-end projection capacity. Can you talk about, in general, what would you expect the qualification periods at the various expansions? And then what would you expect the utilization rates to be at these operations, like 90%? And then what would be your max battery grade, 90%? Can you give us some color around all that?

Yeah. That's one question, Joel.

You don't have a part to this? That's one question, yeah. That's just one, two questions.

Let me guess. If you follow the trend, then the second question will be on the masker. But anyway, let me try on that one. You know, today, if we list our capacity and we list our production rates, our capacity and our production rates are pretty much 100%. Just because of the nature of what they are, we produce pretty much our nameplate. In fact, most of our hydroxide plants we produce ahead of nameplate. I suspect we wonder that in the future because we move the nameplate up as we build new ones. The qualification process, it really depends on what it is. I think it's fair to say that if it's to an existing customer, I'm talking hydroxide now, if it's to an existing customer and we've spent time with them knowing exactly what it is and what they use and what they need, it is months to get qualified provided they want us to let's be honest this is never about how long does it take to qualify it's about the risk that the consumer the lithium is willing to take on and that's why we tend to do it more quickly because they look at our material they like using it they know it's a preferred lithium for them and so they tend to accelerate other than their qualification processes because qualification is expensive for them carbonate's a little different um All of our hydroxide will be battery grade. We pretty much won't make it if it's not battery grade. There's no growth in non-battery grade lithium hydroxide. Anybody who thinks they're going to sell into that market is either selling as a carbonate substitute, say LFP, or they're going to try and take market share in grease maybe. But I think in carbonate, it's a much more complicated question. Just the nature of ground-based production and where we produce and how we produce, we won't get the 90% battery grade lithium carbonate production. But as I mentioned earlier, we don't have to. Because we don't need battery-grade carbonate to feed our hydroxide units. So as we kind of produce lithium carbonate and maybe a quarter or a third of it we're going to sell, that will be the best quarter or a third we can make. And that will go out to the battery customers. And the lower quality stuff that inevitably comes out will go into our hydroxide units.

And then you talked about, I think, $20 billion of CapEx for growth here, 2022 to 2024, so three years, that you should be able to internally fund it. Can you talk about, I mean, are you assuming the prices, lithium carbon hydroxide prices, stay where they are? Are you assuming some moderation? Maybe you can, you know, and what, where would you, under what pricing scenarios would you need to raise some outside money here?

You know, a few quotes about hydroxide production today, the price is set for the next few years, right, of today's production. Clearly, we add more production that we'll decide what to do with. We do expect that the pricing is going to be, like, it's going to be, Good for the next couple of years. That's why I can describe it. Will it be as high as it is today? You know, the prices you see in some of these indices are not realized prices, not by any stretch of the imagination. But we are seeing some equalization of other products, whether it's the metal products, hydroxide, Japan, Korea, US markets, all start to play catch up with the trends that you see in China. I don't think any of us expect them to get to the same prices that you see in some of those indices. I think what we actually have is a couple of years of pricing that is going to be pretty healthy for our industry. We do run, as I said, a wide range of different scenarios. Clearly, there's a big difference as to how much we would need to raise in third-party financing under different price scenarios, but all of them are eminently manageable. Even if we look at Q1 pricing and run that out, or if we look at Q2 pricing and run that out, they're very different numbers. It's a pretty wide range that we model when we make that statement. And again, we've been here before, so there's no guarantees. But we feel pretty good that combined with adding 6,000 tons in 23, another 10,000 tons of product in 24, and another 10 plus, 20 maybe in 25, we've got a pretty good volume offset to make sure that even if we're a little bit off on our pricing, we've still got a pretty healthy cash flow profile ahead of us.

Thank you, sir.

Your next question comes from the line of PJ Jivkar from Citi.

Yes, good evening, Paul. You know, the lithium supply chain, you mentioned it's entangled in China, which is causing price inflation. How do you see that getting unentangled, I guess, if that's a word? And why not move aggressively more in Bessemer Citi in the U.S. supply chain? So instead of that 5,000-ton plant, why not go more aggressively here.

Yeah, you know, hindsight is a wonderful thing. We greenlit that project a couple of years ago, which I think you remember wasn't quite the market we're in today. And yeah, we wish we'd gone bigger, bluntly, but, you know, it's built now. So now let's be realistic, though, PJ. There is no demand for lithium hydroxide in battery applications outside Asia today, right? Pretty much none. And so while capacity is being built, very few that I've seen are going to come online before 2025. The challenge that you have, as you say, unentangling the China supply chain is that actually almost all the lithium is being consumed over there today. I mean, we have this weird disconnect, right? There's a massive ground-based production in South America, massive hard rock production in Australia. You've got growing hard rock production in North America and some alternative, but none of them in China. And we're also seeing slowly but surely more chemical conversion plants going in outside Australia. China, a big one going on in Korea. We've got some Australian ones being built, some smaller ones going in in Japan. The supply chain is slowly moving away from China, but the key is cathodes and precursors. And they're largely still not only in China, but Chinese companies, Chinese producers. So I don't know if we'll get unentangled. I think what you will get is growth in supply chain and battery supply chain that doesn't touch China, but it will still be dwarfed by China and China will still be a pretty significant, not pretty, the most significant piece of the battery supply chain that needs to be fed.

Great, thank you. And then you guys did a good job on explaining your contracts and how they're becoming shorter term. My only question there is, what percent of your contracts are with large automotive customers? And are these annual contracts or are they getting shorter as well? Thank you.

Yeah, you know, it's another interesting one, right? Because I think it's fair to say that contracts today are complicated. There's no doubt about it. And I think there's an attempt on the part of the OEMs to simplify them, but they themselves are still learning the supply chains. I would characterize by far the most important supply arrangements for us are into cathode makers. Maybe that cathode maker is not actually buying the lithium. but they're qualifying us and they're putting it in the material and they're deciding who they use. Increasingly, we're speaking to OEMs. I think we've said in the past, I think the sheer scale of most OEMs is that there aren't any listening companies out there that could, I believe, will be able to have meaningful contract agreements with OEMs, more than four or five OEMs. And so you'll have many, many contracts of a much, much smaller size outside that, but the OEMs are so large that, And they're going to become so complicated in the way that they operate that I think most of us will have to make a choice as to which four or five OEMs we're going to partner with. And I think the OEMs are starting to realize that as well. I mean, you want to buy 250,000 tons of lithium hydroxide a year, as I've heard some people claim, by 2025. You better have a good procurement organization. You better have some world-class supply chain skills if you want to do that.

Great. Thank you.

Your next question comes from David Dekelbaum from Cowan and Company.

Thanks for squeezing me in, Paul, and congrats on some pretty exciting announcements.

Thank you. No problem.

I wanted to ask if you could clarify a little bit your comments earlier. I think you were talking about this evolution of the industry to contracting directly with OEMs. One, As this evolution happens, do you still see incremental margin benefits on top of what we're seeing today, certainly with the updated pricing guide? And then two, you also mentioned that in some cases OEMs are offering capital to perhaps accelerate expansion plans. Is that a possibility for anything that you have planned at Solar Ombre in which you're a third-party capital provider could actually accelerate your capacity expansions? And do these capital infusions from OEMs, do they take the form of a carry sort of operation where you're just defraying some of the upfront costs?

Yeah, you know, I don't know because no one's done one yet that I'm aware of. That doesn't mean the conversations aren't moving pretty quickly. And I think What I've seen and what I've heard is really two different models being thrown out there. I think there are some that believe that to really secure long-term supply of battery materials, especially lithium, and you can see what's going on in nickel for other examples of this and maybe a more extreme version. But in lithium, this idea that you have to invest in a project, literally own equity in it. And we see that tends to be bluntly more Asian battery guys. We think that's the way that they are most likely to secure supplies. So that's what they're pushing for. I think if you look at an automotive OEM, I think there's a lot less interest to invest directly in extraction, in mining, even in chemical conversion plants. And you've got to invest through the flow. You can't just invest in a chemical conversion plant because as much as you've secured the raw material, you're not helping yourself. And so I think they are looking more towards what I loosely call pre-payments. I don't know a better way to describe them, but they're essentially providing capital upfront in return for security over a long-term contract. And probably that capital gets returned over the life of a contract. So there's going to be lots of conversations and some interesting ones about how they're structured. But at the moment, these are all still ideas. They're all offers, they're suggestions. I do believe there's certainly opportunities for livening in that sense. I think a direct investment in a resource In Argentina, not many people are that keen to do that today. I think prepaying or providing capital that is backed by a true long-term arrangement, whatever that may mean, I think is a lot more interesting to most of them. And I suspect that's what we'll see more of. I think what's really interesting, though, if I'm honest, is who are you going to do it with? Because we've seen this, right? You can go and look at capital as provided, contracts that have been signed, money that's thrown out there to people that have not only never produced a kilo of lithium, don't even necessarily have credible flow sheets that they're selling. And yet there's capital flowing to them. I don't think that's helping anybody or anything or anyone. And so I'm really curious now about ultimately how much, despite all the talk, despite all the public statements, how much support are you going to give to those of us that actually have proven we can do this? And that will be a really interesting one to watch.

Absolutely. I'm looking forward to that coming to fruition in the coming years. My follow-up is just briefly on the Chinese hydroxide conversion facility. It looked like 15,000 tons per annum of capacity. It looked like a $15 million build on that. Is that an all-in cost, or do you have a partner there? Are you benefiting already from other sunk capital? Because it looked like it was just in the engineering stage.

You know, as crazy as it sounds, that's pretty much the entire all-in cost of building a unit. I think it's 25 to 30 million, I think, not 15. But still, you know, relative to anywhere else in the world, I don't even know how to explain it. And I've had conversations with multiple, multiple chemical companies, both in and outside the battery materials, who see the same trend. It is in partnership. There's always a partner. You always tap into existing infrastructure that exists there. And it's just a really, it's a fascinating model for putting capital to work. Now, there are challenges, right? Because once you build in China and you import your carbonate into China, the lithium's gonna stay in China. So you gotta be really comfortable as to what your business model looks like in China when you're gonna go and do that. We are, we've been through this, we've learned this with the existing resource. We also saw the back end of last year the danger of being concentrated in a single industrial park in China when, when you sometimes get some shutdowns with energy or COVID or others. So this is going to help us diversify to a different province and a different industrial park. So it also helps us with that. Final point I will make is that most of our business in China is supporting the customers in the West, but for whatever, well, for obvious reasons, are having to produce in China. And so we are serving into what I'll call Western OEMs, Western supply chains, from our China facilities. And this one I expect to be no different.

Best of luck, Paul. Thanks for the responses. Thank you.

There are no further questions at this time.

Mr. Daniel Rosen, I turn the call back over to you.

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