Livent Corporation

Good afternoon and welcome to the second quarter 2022 earnings release conference call for Livent Corporation. All lines have been 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 Livent Corporation. Mr. Rosen, you may begin.

Thank you, Dennis. Good evening, everyone, and welcome to Livent's second quarter 2022 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. 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 will request a limit of one question and one follow-up per caller. We would be happy to address any additional questions after the call. Before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties. Today's discussion will include references to various non-GAAP financial metrics. Definitions of these terms, as well as our 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. Good evening, everyone. Livent had a very strong second quarter performance with the business achieving record levels of profitability. To provide some perspective, Livent's Q2 adjusted EBITDA of $95 million compared to $16 million one year ago, or nearly six-fold increase, and $53 million last quarter. In the exceptionally strong lithium market we're seeing this year, Liven has continued to achieve higher realized prices across its entire product portfolio. Given our expectations for the lithium market to remain structurally tight at least into the first half of 2023, Liven has raised its full year 2022 financial guidance. With our realized volumes in 2022 still expected to be flat compared to 2021, this improvement is driven by higher pricing across all of our lithium products, as well as increased confidence in our ability to navigate this environment of higher costs. LIVEN now expects 2022 adjusted EBITDA to be in the range of $325 to $375 million, or a $30 million improvement at the midpoint from prior guidance. Last week, Livent and General Motors announced that we had entered into a long-term supply arrangement. This is based on a six-year agreement that delivers lithium hydroxide to GM beginning in 2025. As part of this new relationship, GM is providing a $198 million advance payment to Livent, which will be paid to us in 2022. This payment reflects the joint commitment of Livent and General Motors to build a long-term supply relationship and establishes a strong foundation for expansion over time. This contract is structured like all of our long-term hydroxide agreements in that it puts responsibility on General Motors to fulfill its obligations in the form of take or pay commitments and puts an equal responsibility on Livent to do what is needed to meet both the committed volumes and the ever-tightening qualifications being demanded by the next generation battery producers. To be clear, the prepayment is structured as exactly that, a fixed amount per metric ton for supply committed by Livent, which will be credited over the life of the agreement as product is delivered to General Motors and its battery partners. This is a real mutual commitment, not a non-binding MOU or similar. And we believe these are the kind of commitments that can only be made between proven integrated lithium producers such as Liven and an iconic name in the automotive industry such as General Motors that has an advanced and credible plan to succeed in the transition to electrification. This type of structure is important to Liven since it increases both our financial flexibility and our certainty as to how Livent funds and executes its capacity expansion plans. As we continue to scale, customer prepayments allow us to accelerate our expansion capabilities and make it easier for us to make significant commitments to customers regarding future volumes. Although our ongoing growth projects will result in significantly higher production volumes in the coming years, we know that we cannot sell to the entire market. This is because we want to be a meaningful supplier to a core set of long-term strategic customers and their battery supply chains, but also because the lengthy timeline and challenges associated with getting qualified in battery-grade lithium hydroxide dictates the need for longer-dated agreements with firmer commitments. With all of this said, entering into a new relationship with General Motors was a logical and straightforward decision for Libent. We hold a shared commitment to sustainable and responsible operations. We want to bring greater predictability to our supplier relationships. And we have a strong desire to strengthen and localize electric vehicle supply chains in the Western Hemisphere over time. Both companies also have complementary businesses and investment plans in Argentina and in Quebec, Canada. Liven expects to continue to expand its America's footprint over time. while also continuing to add to its capabilities in other key regions. Starting on slide four, I want to highlight the publication of our 2021 Sustainability Report last month and talk briefly about why sustainability is so critical to the discussion of electric vehicles, lithium ion batteries, and the lithium industry. At the heart of the EV revolution is the growing global urgency for decarbonization and climate change solutions, including reduced reliance on fossil fuels for transportation. In the early days of electric vehicles, the comparative carbon benefits of EVs over gasoline-powered vehicles seemed limited to tailpipe emissions with lingering questions about overall carbon footprint advantages. That debate has now been resolved. The data is conclusive that modern EVs have a significantly lower carbon footprint than gasoline-powered vehicles on a total lifecycle basis. This includes emissions from EV, battery, and battery materials production, as well as vehicle end-of-life and well-to-wheel emissions. In fact, a 2021 analysis by the International Energy Agency determined that EVs currently avoid 50% of the total life cycle emissions generated by their gasoline counterparts on the global average. This is actually a conservative estimate, and the gap will only widen as electricity grids become greener. But at the same time, we expect there to be greater expectations for responsible investment and production across the EV, battery, and battery material supply chains. If you look at all the components and minerals that go into electric vehicles, there are clear opportunities for improvement. This goes beyond just carbon footprint. It extends to other environmental impacts, including water use and waste generation, as well as the socioeconomic impact on the local communities near mining and manufacturing sites. This is why sustainability is and will continue to be a top priority for Livent. We believe we have a fundamental responsibility to operate in a safe, ethical, socially conscious, and sustainable manner. You'll see this commitment reflected in our sustainability report. It describes the progress we continue to make across all aspects of ESG, including the key process technologies and innovations which differentiate Liven's sustainability profile, plans to make our operations even more efficient and less resource intensive going forward, and our ongoing efforts to advance human rights and increase the broad benefits obtained by local communities. A dual focus on growth and responsible operations is reflected in our various commitments to expand lithium production in a sustainable way. These commitments include meaningful reductions in our water use, greenhouse gas, and waste disposed intensities by 2030, establishing a path to using 100% renewable energy in our operations, and achieving overall carbon neutrality by 2040. Of course, there's no denying that all extractive and manufacturing processes have some environmental impact, but there are ways to minimize them. At LIVEN, we address these challenges as we do with most things by using a data and science-led approach to assess local impacts and then finding solutions. This is one of the reasons we actively participate in responsible production initiatives such as IRMA, as well as third-party studies on sustainable water use. Our engagement in these initiatives expands and deepens our understanding and helps us to improve. For similar reasons, we've been conducting life cycle assessments, or LCAs, about key products with leading organizations, including Minvero and Argonne National Labs. The findings from these assessments and studies provide insights to drive further enhancements across our operations, and more importantly, deliver on our broader commitments to growing responsibly. Taken together, we believe all of these actions will further enhance our competitive position as sustainability continues to grow as a focus for our customers.

Turning now to some market observations on slide five.

Despite short-term disruptions from a near complete shutdown in key regions in China during the second quarter due to zero tolerance COVID-19 policies, lithium demand continued to be incredibly strong. As we look back at the first six months of 2022, Chinese EV sales reached new highs of 2.6 million vehicles, or roughly 115% higher versus the prior year period. The China Association of Automobile Manufacturers has increased its new energy vehicle production forecasts for the full year 2022 by 10%. Additionally, Total battery installations in China through the first half of the year are up by even higher percentages. With limited additional near-term lithium supply coming online and continued long and complex qualification processes for certain products, the market has continued to be extremely tight. What is even more clear is the forecasted lithium demand growth, which shows no signs of slowing down. continues to outpace any reasonable projections of supply growth in our industry over the foreseeable future. That is not to say that there will not be some supply relief in the coming years, but it is hard to see a probable scenario where the lithium market does not remain structurally tight to varying degrees. So while the dramatic rises seen across all lithium prices, particularly in China, have started to stabilize, We believe that it is unlikely that prices will decrease dramatically from current levels during our near-term forecast period. It's important right now that even at recent historical highs in lithium prices, we see no evidence of a resulting slowdown in demand. This is partly explained by the fact that lithium prices realized across our industry due to different regional, quality, and contractual situations are not on average at the level seen in the China price reporting data. Conversely, on the supply side, there's little surprise in the increased number of expansion announcements, given the apparently clear financial justification for even the riskier or less attractive development projects. However, as those who have followed this industry for a period of time understand, making an announcement is not the same as bringing on usable supply. and more projects pursuing the same scarce capital and human resources may, in fact, slow down the pace at which new supply comes to market at a time when acceleration is needed. Expected supply additions continue to be meaningfully delayed, as has been well documented. There are multiple reasons for this, ranging from permitting challenges to difficulties in procuring long lead time equipment with multiple competing projects. to difficulties in finding sufficient experienced labor. Expansion projects, and especially the greenfield developments that are becoming more critical, are very complex undertakings and are time intensive by their very nature. On top of this, the input costs for these necessary expansions are moving higher due to inflationary pressures and tight labor markets, especially in remote parts of the world where most activity is taking place. And of course, pressure from local communities to participate in these projects, from decision-making processes to employment opportunities and royalty structures, means that a longer, more extensive engagement is required before many of the greenfield projects can commence development. Understandably, in this environment, and with a growing realization that there is a fundamental shortage of lithium available for at least the next couple of years, there is a higher focus from lithium consumers, and particularly automotive OEMs, on securing battery-grade lithium from proven suppliers. As demonstrated by recent announcements, including ours with General Motors, OEMs are becoming much more involved in battery material procurement conversations, and they are seeking to sign commitments with and increasingly provide capital to battery material suppliers across all products, and across all stages of development. However, we continue to believe that simply providing loan commitments or signing non-binding MOUs would do little to accelerate current projects and will not make a difference at all to the fundamental engineering or technical development challenges many of them face. I will now turn the call over to Gilberto.

Thanks, Paul, and good evening, everyone. Turning to slide six, Liban reported second quarter revenue of $219 million, adjusted EBITDA of $95 million, and adjusted earnings of 31 cents per diluted share. This is a record quarterly financial performance for Liban and demonstrates our ability to execute in this strong market environment. Versus the prior quarter, revenue was up 52%, with slightly lower total LCE volumes sold, more than offset by much higher realized pricing across all of our products. The lower LCE volumes delivered was not a reflection of lower demand, but rather was a function of customer timing, as well as some logistical challenges in China due to the COVID-related lockdowns. Second quarter adjusted EBITDA was 78% higher than just last quarter and was roughly six times higher than the prior year. This was due to a meaningful step up in lithium prices across all products and our ability to take advantage of higher market price. Costs were also higher versus the prior quarter, largely due to rising costs of feedstock material, such as lithium metal for our butyl lithium business. However, Livet has been able to pass through most of these higher costs to customers. We finished the quarter with $49 million of cash on the balance sheet, and our $400 million revolving credit facility remained undrilled. We also ended the quarter with roughly $179 million of common shares outspending, inclusive of the additional shares issued in conjunction with the Namaska transaction, which we closed during the second quarter. Livenau has 50 percent ownership interest in the Moscow. Through the first half of 2022, lithium demand was exceptionally strong, and published lithium prices in all forms moved higher, reflecting tight market conditions. We expect these market conditions to remain through at least the rest of 2022, and most likely into the first half of 2023. Livin's realized prices across all products were significantly higher sequentially in the second quarter, and we are expecting prices to remain at similar levels in the remaining quarters this year. As a result, Livin has further improved its outlook as we move to the second half of 2022, as shown on slide seven. This positive pricing impact, which has far exceeded our initial assumption It's largely reflected in the uncontracted portion of our business, which includes roughly one quarter of our hydroxide sales volumes and all of our carbonate sales. And it also includes butyl lithium and high-purity metal, where we actively shifted price setting from annual to a more short-term basis this year. This was done to address some of the more acute input cost pressures we are experiencing in those businesses, particularly leaching metal. 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 a last guidance. For the full year 2022, LiveNOW projects revenue to be in the range of $800 million to $860 million and adjusted EBITDA to be in the range of $325 million to 375 million dollars at the midpoints this is a 35 million and 30 million dollars higher than prior guidance range respectively and is underpinned by the expectations for higher realized pricing across all lithium products as a fully integrated producer of lithium products with predictability around cost and security of supply Lighting is able to build its core business around long-term supply agreements, with firm commitments and more predictable pricing, while still retaining the ability to take advantage of higher market prices. This is supported by our position in key strategic markets and regions, and our ability to deliver both lithium carbonate and hydroxide to customers provide us with a differentiated position and greater operational flexibility. Liven has also increased its full year 2022 outlook for adjusted cash from operations to a range of $280 to $340 million, which would mark a company record. This is a significant increase in cash flow generation. And as we look to the next few years, it will be enhanced by additional production volumes come online. This much improved cash generation position coupled with the $198 million advance payment from General Motors, provide Liven with ample liquidity to continue advancing, and where possible, accelerate its capital expansions. Liven's projection for 2022 capital spending of $300 to $340 million remains unchanged. Having spent $132 million through Q2, the pace of spending should increase in the second half of the year, in line with our expectations heading into the year. I will now turn the call back to Paul.

Thank you, Roberto. I want to conclude with a few comments related to our ongoing expansion work and reiterate that we remain on schedule to deliver all of our enhanced capacity expansions. Focusing on the near term, the first 10,000 metric ton expansion of lithium carbonate in Argentina will be mechanically commercial production during the first quarter of 2023. The company's 5,000 metric ton expansion of lithium hydroxide in Bessemer City will be mechanically complete by the end of September this year and in commercial production the following quarter, although we do not expect meaningful sales from this unit until the start of 2023, given the nature of qualification processes and the timing of our additional carbonate production that will be used as feedstock coming online. Liban is on track to add another 10,000 metric tons of lithium carbonate capacity in Argentina by the end of next year, which will nearly double Liban's total available LCEs from 2021 levels. The company also expects to add another 15,000 metric tons of lithium hydroxide capacity at a new location in China by the end of 2023. Finally, NAMASCA is concluding all remaining work on its construction plan. This is expected to be finalized by the end of the third quarter of this year, and we plan to provide a more detailed update on NAMASCA as part of our next earnings call. As a reminder, NAMASCA will be a fully integrated asset located in Quebec, Canada, with an expected 34,000 metric tons of battery-grade lithium hydroxide capacity and first production in the second half of 2025. We look forward to keeping you updated on all of our progress in the coming quarters as we start to bring incremental volumes online and further advance our longer-dated expansion projects. I will now turn the call back to Dan for questions. Thank you, Paul.

Dennis, you may now begin the Q&A session.

Thank you. If you would like to ask a question, 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, please press star 1 again. We'll pause for just a moment to compile the Q&A roster. And the first question is from the line of Christopher Parkinson with Mizuho. Please go ahead.

Great. Thank you. Good afternoon. Very simple question. Just, you know, Paul, obviously you've been evaluating some of these potential contracts with the OEs. for quite some time. Can you just offer a little bit more color on the key variables that made GM such an attractive choice versus your discussions with other customers? Sure.

Look, I think it's, you know, you don't get to these kinds of commitments quickly. And so we've been for a long time. And it gives us an insight into how their thinking has been developing and frankly gives them an insight into what our capabilities are. And so I think it really starts with a long-term engagement with them where you sort of figure out what does each of us want. As I said in the call, Chris, we can't serve everybody. So looking for people who share our views as to how these supply chains can most responsibly evolve is really actually pretty important to us. I mean, we've been pretty clear that we believe localization of supply chains and certainly America's localization makes a lot of sense. And General Motors shared that view. I think we also... are very thoughtful in many cases about what kind of commitments each of us are willing to make. And not every automotive company thinks of a commitment the same way. And General Motors is certainly thinking for the long term here. By making the advance payment, the prepayment, they are clearly indicating and giving us the commitment that we were looking for. Because let's be clear, it's very much a commitment on our side too. We have to now make sure that we have both the capacity and frankly, the material qualified into a supply chain that today doesn't necessarily exist with as much visibility as either of us would like. And so this is an engagement that requires us to be able to work together carefully and closely. And of course, we look for senior level commitment from General Motors and just as they do from us and we were able to get that as part of this process of getting to know them better. So lots of factors really go into it, to be honest, Chris.

That's helpful. And just as actually as a corollary of that question, and ironically part of your response, you know, if some of these upfront payments become more of the norm, whether it's to you or, you know, other producers, I mean, does that ultimately open up other opportunities to diversify and, you know, look for other expansions or is there anything else to kind of add? Is this more about the asset or is this more about the producer and your ability to deliver high quality products?

You would have to ask each counterparty that we deal with here, each partner that we have, what their view of it is. I think I'm probably on safe ground by stating that most automotive OEMs who are still learning what the lithium industry is all about have more confidence committing capital and just committing periods to somebody who's demonstrated over decades or more that they can do this. It's a very different thing when you turn to somebody who has a hard rock mine in Australia or a non-conventional resource somewhere else, or even, frankly, a new resource down in Argentina, it's a different commitment you're going to be willing to make, including the form of that commitment, whether that's an MOU, whether that's a loan versus a prepayment, et cetera. And I think to the extent that there are opportunities to partner with us to grow our asset base in a way that otherwise we might not be able to do, I think people like General Nortes were absolutely open to hearing about that.

Thank you.

Your next question is from the line of Chris Katsch with Loop Capital Markets. Please go ahead.

Yeah, good afternoon. Thanks. So you made comments that you see the fundamentals as structurally tight sort of into the foreseeable future, but you also said on your revised guidance, the outlook of pricing just through being shrunk just through the first half of 23. So I'm just wondering if you could sort of reconcile those comments and also on pricing outlook. Do you see hydroxide and carbonate prices remaining close to parity or diverging over time?

You know, our ability to forecast four quarters out is notoriously awful, right, as an industry, you know, forecast prices. And so sitting here in August, I feel confident about forecasting the rest of this year. It's hard for me to see what makes them change in Q1 and Q2 of next year. I'm not suggesting, by the way, that the end of Q2 next year this environment is over. I just am not willing to look much further than three or four quarters ahead. And so the comment that it's turning to the end of 2022, I mean, that's why we were confident in moving our guidance up. I just want to send the message that I don't know what changes in the next three, four, five months that makes the first half of 2023 feel materially different, to be perfectly honest. So I think that's really sort of where I'm coming from with that comment. Sorry, your second part of the question, Chris, again.

Just right now, hydroxide and carbonate prices are sort of at – we're close to parity. Do you see those diverging over time as more carbonate versus hydroxide or credible battery-grade hydroxide comes on?

It's a hard one to answer. The logical answer is why would you make hydroxide? It's just much more difficult to make. It's much more difficult to get qualified. Qualification processes are not shorter in this market. Everybody predicted when supply gets tight, let's see what qualifications like them. They've largely got longer for us, most qualification processes. They're not shorter. Carbonate commands a similar price today. I mean, in making a decision, honestly, rationally, why would you make hydroxide? But of course, we know if that does happen, you'll create, you know, quite likely a supply tightness in hydroxide, especially as it grows just as quick, if not quicker, and from a smaller producer base. So I do expect hydroxide to maintain a premium. I think we've seen in the past that it tends to be more stable because of the contracting nature in hydroxide. I think that will be the case too. I think you'll just get more volatility in carbonate pricing. Having said all of that, one thing we've discovered is that because of the predominant way that most products are made, today at least, there's always a knock-on effect. When you have LCEs in some form, somebody somewhere has to make a decision as to what to make of it. We've seen in metal, particularly, the challenges in getting lithium metal prices down because everything's referenced against a decision. should I just make the simple version of carbonate? You know, I think it's why commitments from OEMs are going to be needed to incentivize people to continue to invest in hydroxide. And I think in return for that, you'll certainly get more stable and predictable pricing in hydroxide.

That's helpful. My follow-up question was just on the GM agreement. And just curious if Namaska has contemplated in that partnership at this point, or If not, why not? Thanks.

Yeah, NAMASCA's still an independent entity, just remember that, right? And so while there won't be any commercial agreements, and NAMASCA hasn't contracted anything yet, right? It's still too early in its development process to do that. So this is not contemplated in there. Look, clearly, forming a relationship with General Motors, we would be disingenuous if we didn't look to Quebec and what both of us are doing there and see great opportunities to remain very close in that regard. We have a partner in the masculine and IQ who have just as long to say as we do. And so whatever decisions are made around the massacre will be made by in the massacre, but will require the approval of both live and and IQ. And as I said, it's still a little too early to make those commitments on the masters.

Fair enough. Thanks, Paul.

Your next questions from the line of Steve Richardson with ever core is I please go ahead.

Good afternoon. Paul, I was wondering if you could talk about as you've concluded the GM agreement, just thinking about your other stable of customers. I guess the question is your existing customers are seeing you lock up some of your volume growth contractually. Does this create an opportunity to convert some of the shorter-term agreements to term in the same way? And again, I guess the The follow-up to that is, how many of these types of agreements do you think are the right number for the size of business you'll have in 2025 and 2026, considering the tonnage?

Yeah, really good questions and ones that we wrestle with every single day. I think it's important to point out every single customer OEM that we have is at a different stage in their development. They're running different models about how and where and why they source batteries. They're probably running different mixes of carbonate and hydroxide based batteries in different regions and some have global strategies and some have regional strategies. And so I don't think we have a one-size-fits-all for our customers, nor would we want to. I think we've said that we're looking to build long-term supply agreements. By definition, that means that the supply agreements we have today, we want to continue. We want to continue to grow them and build them. And we've put a lot of time and effort and investment into those customers. And so adding a couple more customers does not represent, by any stretch of the imagination, a change in strategy or tactics with our existing customers. With regard to how many is enough, you could certainly feasibly stop at three and still wish you were bigger in terms of what your market share will be at each of those customers. I think for us, it's going to be much more regional in the way we answer that question rather than taking a global perspective on the addressable market at customers. It's going to be more of a regional question. I would expect that we certainly will want to add over the next two, three, or four years as we double in size and then hopefully double again in the future. we'll want to add at least a couple more major relationships to be of a size that makes sense. Now, I wouldn't forget, by the way, that behind that are a whole bunch of relationships that we do have with multiple cathode producers that we intend to continue to support away from their OEM supply chains, as well as industrial customers. We have our carbonate business, which is obviously very different, and then our butyllithium and metals-based businesses. So we'll continue to have diversification, even if we remain relatively concentrated in hydroxides.

Great, thanks. If I could just slip in one more, Paul, I think it's important to address, you know, there's been some volatility around, you know, headlines out of Argentina around the regulatory framework, and I was wondering if you could just quickly address your relationships in the province and that regulatory framework and the stability of that, just in regards to some of the volatility we've seen with some of these headlines. Thank you.

Yeah, I'm not sure that's possible to be addressed quickly, but Argentina's complicated, but we've been there a long time. We have You know, there were really two major areas of relationships, federal and provincial, and the federal relationships. The federal's complicated right now. I mean, there's been enough changes around that economy ministry today, the structure of it, the head of it, what we've forced into it. It creates noise, and a lot of it, bluntly, is noise. We don't see a lot of near-term or short-term impact on us from most federal actions, and The bigger relationship that really matters, frankly, particularly for expansions and ongoing operations at the provincial level and the province of Catamarca is critical to us. We invest a lot of time in communities in Catamarca. We invest a lot of time making sure we have complete transparency with both the government there, the governor, the administration, and the communities. And it remains a constant dialogue that we have with them, which is, I think, very good. It's very solid. We don't always agree with each other. And I think sometimes we have to agree to disagree on certain topics. But we're all trying to pursue the same thing, which is increasing the economic benefits to Argentina, to the province of Catamarca, through responsible development and responsible operation.

Thank you.

Your next question is from the line of Kevin McCarthy with Vertical Research Partners. Please go ahead.

Yes, good evening. Paul, how would you describe the pricing mechanism that's embedded in your contract with GM for lithium hydroxide?

I'm surprised we didn't wait so long for that question, Kevin. Obviously, we're not going to disclose confidential commercial details. It's not appropriate to do so. But what I would say is I think a couple of the principles behind this were, I think there was a desire to not attempt to try and predict future prices with too much accuracy. So variable market-based references are certainly involved in the way pricing will ultimately be set. But at the same point, I think we also wanted to avoid either party being in any way economically disadvantaged by either incredibly tight or incredibly loose market. So we put in place mechanisms that help to protect livens profitability in an environment where pricing moves down significantly and to protect General Motors profitability in environments where prices move up significantly. So they were really important parts of the conversation, really important parts of the structure. And look, bluntly, we both look at each other and say neither of us are smart enough to know what the price of lithium, my God's eye, is going to be in 2027 and 2028. And so we recognize that we have to keep engaging with each other to make sure that the partnership is delivering what both of us want. Pricing is only a piece of that, but it's an important one.

Thank you for that. It makes sense. As a second question, I wanted to ask you about volume. I think in your prepared remarks, you affirm the view that volume will be about flat for this year. As I look at your slide 10, it appears as though volume declined sequentially in the quarter, and I believe that was true of the first quarter as well. If that's correct, should we expect higher volumes in the back half of the year relative to the front half, or how would you characterize the amount of volume that you have sold and will sell?

That is absolutely how math works, correct.

Thank you very much.

Your next question is from the line of Pavel Makano with Raymond James. Please go ahead.

Thanks for taking the question. So a lot of bullishness, but let me rain on the parade a little bit. What in your mind could cause a down cycle in the lithium market? conceptually.

So let's think about what underpins its structure.

I mean, we can all point to larger, major global events that could change this, particularly in China, particularly given how much of the lithium flows through China. You can't help but look in that direction and say, could you get a major disruption over there of whatever type? I don't know how to predict that or how to manage my business any differently around that one. I think It's difficult to imagine that the pressures that are creating demand in China and in Europe particularly, as China has massive policy incentives in place to drive electrification, to drive leadership, frankly, in the entire value chain of electrification. And that's just been reaffirmed very recently with some of their policies. I think China is going to continue to be an amazingly important end market, not just a manufacturing location, but a demand location. I don't see that fundamentally changing. I think that Europe is the same. I think for whatever good or bad reason, the policies in Europe are really here to stay, and I don't think anybody's expecting a sudden reversal away from them, because they are largely driven by climate change commitments on their part, which is different to China. I think the US is creating a lot of demand right now, a lot of demand expectation, and clearly that may not be there. It's much more difficult to predict. Some of the acts that are being looked at and trying to pass right now clearly help. You build that confidence. I think consumers continue to look at electric vehicles in the U.S. favorably. But maybe there's a demand shortfall or decline there. It's hard for me to really see a single area that's going to fundamentally change the demand side. So then you just turn your question to somebody from the market on the supply side. I mean, We have total demand for lithium hydroxide, for lithium, sorry, on an LCE basis in 2022, probably up 200,000 tons or more. There's very few new projects come online that are bigger than 30,000 or 40,000 tons. I mean, so it's hard to flood a market when a single project is 30,000 tons and we need six or seven of them a year just to deal with the growth. So I struggle to see where a big flood of supply comes from as well in the short term anyway, so.

You touched on this a minute ago, but what are your thoughts are on these domestic content rules being proposed in relation to the electric vehicle tax credit in the United States?

I think a lot of that domestic content would have happened anyway, maybe not as quickly, or maybe it feels more certain now, but I think people do understand post semiconductors, that the challenges, the risks, and the dangers of allowing such heavy concentration in a single single country of all the manufacturing and so I think in our conversations with General Motors and others all reflect this strong desire to diversify supply chains for good economic and business reasons they don't need legislation but legislation helps for sure thank you your next question from the line of Joel Jackson with BMO capital markets please go ahead hi good afternoon I'm

Just reviewing some of the disclosure and guidance you gave from the Q1 deck, you talked about having 29,000 tons of LCE available for sale in 23, 34,000 tons of LCE available in 2024. You don't have those same set of slides in this deck. Is that still the guidance or is something better or worse?

No, at the moment, that's still the same. That hasn't changed. That reflects the timing on which product new capacity comes online and the ramp up time and qualification times. And so I think as we get nearer to mechanical completion and start them, we'll be in a better position to see, look, how much will we actually add in 2023 of saleable product? We know what we add in capacity, but I think you know better than anybody, you don't just switch these things on and lithium carbonate or hydroxide comes spitting out. So the speed at which we can bring them on and the pace at which we can get individual new units qualified will allow us to revisit those numbers closer to the time.

Thank you for that. I wanted to bring up, again, the question of what to do with the mask, obviously, as a partner with Investable in Quebec. I mean, obviously, you know what happened to mask last time, and they signed a bunch of off-takes with small amounts of money here, $10 million, no upfront capital, didn't really help them raise over a billion dollars. We've seen another OEM the last couple weeks go out and throw MOUs, you know, not with a lot of commitment at all, a bunch of junior projects, don't know what that means. You know, as a partner at Namaska, you know, with IQ, what will your kind of leading be? Would you be willing to sign an MOU that doesn't have paid upfront capital or maybe leading to a deal like this where you get a couple hundred million dollars that you did what you did in existing assets or expanding assets, a couple hundred million dollars to help get some commitment from the OEM? Like, what's sort of your leaning?

So I think two things we have never been supporters of are what I'll loosely call, in fact, it becomes a running joke with our conversations with customers and potential customers is we correct them every time they say offtake. You can't run an offtake agreement on lithium hydroxide. It assumes you delivered at the factory gate and off it goes. They're proper, you know, chemical supply agreements that require real engagement. So we don't sign MOUs and we don't sign anything that looks like a free option for the purchaser. We would not be supportive of that. And that is what Namaska did last time. We also are not supportive of prematurely putting debt onto Namaska. I think as a business, it clearly can support a debt load at an appropriate time, but we know that was taken down by an inappropriate debt load. We will work with IQ to make sure we get the funding in place the right way. There are a number of customers that make a lot of sense for Namaskar given where their supply chains are being built and we and IQC completely eye to eye on that. Which of them we choose to contract with will again, just like we said with General Motors, I think be a function of what kinds of commitments those customers are willing to make today. We recognize it's a development project. It doesn't have the broad network of assets. gives customers more comfort that they actually will get the product. So it's going to look different for Namaskar, but I think a lot of what we talked about today and what we've been talking about, frankly, on calls for a couple of years now, I think Namaskar lends itself very well to finding the right partners, making the commitments, and working with them to get them what they need while at the same time giving Namaskar what it needs.

Do you find strategics look at Quebec a little more negative based on some of the history of other projects? Yeah, well, compared to anywhere else, but Quebec started for that bad luck the last decade, right?

I actually hear the opposite. I hear a lot of people say incredibly good things about the way the Quebec government has put in place its battery policies and its infrastructure support. I have to say I've kind of seen the same thing. I've heard this comment about Quebec somehow being disadvantaged in various ways. Just frankly, I haven't seen it yet, and maybe I'm not looking in the right places, but I think they have a very coherent policy. with regard to broader who they're trying to attract. I think they've been very successful in presenting their assets, not just the resources, but hydroelectric power, green power, physical location, et cetera, geographical reach very effectively. I think Quebec's probably one of the more favorable jurisdictions I hear customers being willing to be associated with.

Thank you. Your next question is from the line of Alexi Yefermov with KeyBank Capital Markets.

Please go ahead.

Thanks. Good evening, everyone. Paul, have you extended any contracts further from your long-term contract portfolio during the quarter, or have you renegotiated other terms such as price? No. In a more favorable direction? No. Okay. So that's pretty steady. So if you look at the portfolio of contracts for 23, how do you feel the pricing for those long-term contracts is likely to behave? And maybe what percentage of them can have a meaningful update on price? And maybe as a group, that three-quarters of hydroxide that's on the long-term contracts, what the ASP change could be?

Yeah, I don't think they'll change at all. I'm not expecting them to change at all because of the nature of those. They'll be there, frankly, will be a little bit of an increase for a bunch of minor reasons I won't bore you with. So they will grow up a little bit on average for next year. But no, I'm not expecting major changes. I mean, I think we factor this idea of commitment to customers, right? Unless there's a very good reason to renegotiate on both sides, these contracts were designed to stay in place the way that they are. I would say they'll represent a smaller proportion of revenue next year because we have more volume coming online, and none of that has been committed, nor will we commit it before we go into next year. So we will have more market exposure on a relative basis and then an absolute basis next year.

Makes sense. Thanks a lot, Paul.

Your next question is from the line of PJ Uvicar with Citigroup. Please go ahead.

Good afternoon, Paul, and congrats on your GM announcement. Does it involve building this GM agreement? Does that involve building incremental conversion capacity in North America? What are the commitments on building out new capacity to meet demands of GM?

We have made no specific commitments. It's entirely up to us as to how, when, and what we do with regard to meet those commitments. We've clearly made commitments, and those commitments include both a volume commitment and a regionalization commitment. So we will absolutely meet those commitments, but there is nothing specific. We have complete freedom as to how we do that.

And what do you mean by regionalization commitment? What does that mean?

They're looking to have lithium hydroxide produced in very close proximity to where they produce their cathode materials and then ultimately where they produce their batteries. So as their chain of supply chain, if you will, for that battery technology, I think they've announced now a couple of cathode partners. cathode material capacity in North America. GM want the lithium hydroxide to also be produced in North America. They don't need the raw material to come from North America, but they want that final production, that processing step into lithium hydroxide to be in the same region.

Interesting. Thank you. And then, you know, a lot of people have talked about solid state batteries or silicon anode or lithium metal batteries and You know, have you seen any significant advances or all these technologies still a few years away?

No, one thing I can tell you is that it's a lot more difficult to get excited about, you know, a solid-state battery, a lithium metal battery when lithium metal is so expensive now, right? I mean, the economics quickly get twisted on solid-state if you're not careful. So the question is, do you get as much performance out of it relative to the extra cost of that lithium metal you have to put in there? Depends on the solid-state technology. I will tell you... I don't expect solid-state technology to material and incrementally move on a quarter-by-quarter basis. It's just not going to happen that quickly. And so you can ask me each quarter, and I suspect it'll feel the same. While there may be changes taking place, I don't see anything that suggests or any automotive OEM having any kind of conversation that suggests an expectation of an imminent shift to solid-state.

Great. Thank you.

Your next question is from the line of Matthew Dayo with Bank of America. Please go ahead.

Afternoon, everyone. Paul, you're live and on track to add 20,000 metric tons by the end of next year, right? But clearly bullish, right? So why... Why is that production expansion not 30,000 or 40,000 or 50,000? What are the primary blocks to being more aggressive? Because some of your peers are taking much bigger swings at some of the expansions.

The easiest way I could answer that is to say, why don't you come and visit our site in Argentina and see how you feel about expanding at that pace? I'd love to. Remote, it has significant infrastructure that needs to be built. The lead time on building that infrastructure is not six months. And if I may remind people two or three years ago when we started this project, the marketability wasn't what it is today and no doubt at some point in the future won't be. It's not easy to commit to take a facility that needs major, I mean, hundreds and hundreds of millions of dollars of capital invested in it to grow at those rates. to make that investment when you're getting, you know, $10, $11 for this night, you're just not going to do it. And that's why we were a year ago, a year and a half ago. Will we be more aggressive if we can be? Yes, but there's only so much you can do in some of these locations that they are not, and it's one of the key challenges that I think people just don't fundamentally understand. These are not infinitely expandable mines. As large as the resource may be, it's never really about the resource with the brine, grind resource or grind operation. It's about all the above-ground processing that requires infrastructure that just doesn't exist and so you've got to build it yourself and that can make meaningful difference to capital needs, to timings of expansions, and to, frankly, willingness to commit to large expansions without firm commitments on price.

I appreciate the context.

I guess on the guidance, if we were to look at the lower end and the higher end, I guess it seems like the contract side is pretty firm. We have volume coming in in the second half, but what's assumed on the high end and low end? Do you need more price traction in China or Asian on China to get to the high end, or what does that look like?

Easiest way, it's sort of a timing of shipment and a mix question. It can move around pretty quickly depending on who you ship, which customers, what mix goes where. You can see the volume in Q1 and Q2 largely driven by factors outside our control, inability to move stuff in and out of China, for example. Occasionally, the inability to move stuff out of either Argentina or Chile, depending on what's going on there. Don't have complete control over it. Because a lot of this is known, it's moving at a reasonably high price, you know, that doesn't take many tons for it to make a difference to EBITDA. So that's really what's driving the range. It's supply chain logistics and predictability, particularly towards the end.

All right. Thank you.

Your next question is from the line of Corinne Blanchard with Deutsche Bank. Please go ahead.

Hey, good afternoon, everyone. Most of my answers have been answered, but maybe just more general. Do you have any view on the hydroxide side? There is many upcoming converting facilities in Australia. How do you view that they can compete potentially with you? And then the second would be also your view on some of the potentially upcoming projects in Argentina. You touched base on the lack of infrastructure, et cetera. Just interested in hearing your view on those.

Yeah, I think building hydroxide plants in Australia has not been a particularly successful process for new entrants yet. I think there'll be a couple of big ones come on. They'll be successful. They're owned and operated by very credible existing competitors of ours. I have absolutely no doubt they will be successful. And that's great. I mean, they naturally point at Southeast Asia, away from China. One thing I will tell you is making lithium hydroxide for a Korean or a Japanese customer is generally more difficult, right? So your qualification bar is higher. The quality bar is higher. So you're taking on a different commitment when you build those hydroxide plants there. I think we're seeing sort of an increase in what are loosely called synthetic production, i.e. the spodumene producer maintaining control of the spodumene and having a Chinese converter totally for them. That'll be an interesting development because it's hard to know where that material goes in the end depending on the quality of the product and what the qualification demands are, but it'll certainly contribute too. But I don't view it as being a massive competitor necessarily to what we're doing. particularly as we look to regionalize in the Americas. I just think it's far more natural that Australian assets will point to Southeast Asia. I think in terms of Argentina, look, every single Argentinian resource is different. They all require different technologies. Not all of them lend themselves to POM-based systems. Not all lend themselves to DLE-based systems. Some of them are so incredibly remote that it's hard to know how in the end they get employees up there, how they get material on and off the mountain but there are some big deep pockets of names chasing them and developing them and and i think it would be naive of me to think that they don't have the in-house capabilities in the end ultimately to succeed but it won't happen quickly and uh it's bear in mind everything coming out of brian is carbonate as well and so it's going into a different market and my experience are very few of them that are developing their are looking now to turn that carbonate somewhere into hydroxide. Not by the way, should they? I mean, they've got a natural market in carbonate. They'll be very low-cost producers of carbonate, just as we are. And so I think it's going to sort of speak to a market that, while in many ways is similar today, probably looks very different a decade from now, as you think about those new resources and new entrants in the market.

All right, thank you. I appreciate it.

And our last question will come from the line of Lucas Pipes with B Reilly Securities. Please go ahead.

Hey, good afternoon, everyone. This is actually Matt E here asking a question for Lucas. Most of my questions have already been addressed, but I guess I would like to drill down a little bit on the updated outlook a little. The new EBITDA guidance applies roughly 100 million per quarter. How are you thinking about kind of the earnings cadence over the next two quarters? Should we expect that mostly flat or more front-weighted? Thanks.

Yeah, I know we don't give quarterly guidance, as you know, and so I'm going to do my best not to give you backdoor quarterly guidance, but clearly, you know, the guidance assumes $200 million or plus of EBITDA over the next two quarters. You know, historically, our business has tended to be reasonably even on a quarterly basis. You do sometimes get... more demand in the back half of the year from customers. We also tend to find we have more production disruptions in the back half of the year, whether that's weather in the southern hemisphere as we go through August and into September, or whether it's some of these shutdowns in China that have been imposed on us in the last year or two, particularly in the back half of the year. So allocating between those two quarters is going to be pretty difficult for me to do today. But yeah, look, your math is right. We need, on average, 100 million a quarter for the next two quarters.

Awesome. That's very helpful. That's all for me. Best of luck.

Thank you. This concludes the Q&A portion of today's conference call. I will now return the call to Daniel Rosen for closing comments. Thanks, Dennis.

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.

This concludes the Libin Corporation's second quarter 2022 earnings release conference call. Thank you.