Livent Corporation

Good afternoon, and welcome to the second quarter 2023 earnings release conference call for LiveEnt Corporation. Phone lines will be placed on listen-only mode throughout the conference. After the speaker's presentation, there will be a question and answer period. I will now turn the conference over to Mr. Daniel Rosen, Investor Relations and Strategy for LiveEnt Corporation. Mr. Rosen, you may begin.

Great. Thank you, Josh. Good evening, everyone, and welcome to LiveEnt's second quarter 2023 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 would 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 Form 10-K and other 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. Good evening, everyone. As always, we have a number of important topics to cover with you today. Liven reported another strong financial performance in the second quarter, and we continue to see very healthy demand from our customers amid a fairly resilient broader lithium market environment. The company is also reiterating its full year 2023 financial guidance after previously raising projections with our first quarter results. This year's anticipated record performance is highlighted by adjusted EBITDA projected between $530 and $600 million. Progress at Namaska Lithium, an integrated 34,000 metric ton lithium hydroxide project in which Liven is a 50% shareholder and operating partner, continues to advance. After completing its detailed engineering phase earlier this year, and receiving Namaska board approval, the company is pushing forward with construction and plans for first sales in 2025 in the form of spodumene concentrate. We've provided cost estimates for development of the integrated project, as we will discuss. Namaska Lithium also signed its first customer agreement, which was announced with Ford Motor Company in the second quarter. Ford will be an important and strategic partner as both companies and Livent share a commitment to the development of a sustainable and socially responsible North American battery supply chain. During the second quarter, Livant and Allchem announced a proposal to combine in a merger of equals transaction to create a leading global lithium chemicals producer. In addition to reiterating the highly compelling logic for the transaction, we will highlight the progress made since signing and the key milestones to expect as we approach targeted transaction close by around the end of calendar year 2023. Finally, Livent recently published its annual sustainability report for 2022. We will touch on key accomplishments for the company, as well as our unwavering belief that lithium will continue to play a critical role in supporting a low-carbon future. Before going into more detail on Livent's business updates, I will turn the call over to Gilberto to discuss our second quarter performance as well as our reiterated full year 2023 financial guidance.

Thanks, Paul, and good evening, everyone. Turning to slide four, LIBOR reported second quarter revenue of $236 million, adjusted eVisa of $135 million, and adjusted earnings of 51 cents per diluted share. These results were all up considerably versus the second quarter of 2022, but were lower than record setting first quarter 2023 results. Volume sold were roughly flat versus the first quarter, while average realized prices were slightly lower and overall costs were higher. all of which was largely in line with our own expectations and already reflected in our 2023 full-year financial guidance.

Lower realized price in the second quarter was seen across most of our region products. However, Ladies and gentlemen, this is the operator. We're currently experiencing technical difficulties. Please remain on the line. Thank you. Thanks, Paul. So we'll start again. Thanks, Paul, and good evening, everyone.

Third is just slide four. LIDAR reported second quarter revenue of $236 million. adjusted EBITDA of $135 million, and adjusted earnings of 51 cents per diluted share. These results were all up considerably versus the second quarter of 2022. They were lower than record-setting first quarter of 2023 results. Volume solds were roughly flat versus the first quarter, while average realized prices were slightly lower, and overall costs were higher. all of which was largely in line with our own expectations and already reflected in our 2023 full year financial guidance. Lower realized price in the second quarter was seen across most of our lithium products. However, the impact was more limited by the fact that we sell very lithium carbonate today, which is where we saw the weakest relative prices. Given the negative trend we saw in lithium market prices in the first quarter of this year, and the natural lag of a few months typically seen in achieved contract prices, we had decent visibility into this move lower. We previously discussed the cost-related benefits we saw in the first quarter as being mostly timing-related. As expected, we saw the impact of higher costs on our second quarter results, and we'll continue to do so for the remainder of 2023. The biggest drivers behind this increase were royalty payments as a result of higher reference price on which royalties are calculated, and higher input costs for production, most notably energy, raw materials such as soda ash, and labor. Levin's total capital spend year to date was $156 million. We expect this level to increase in the second half of the year as we further progress multiple ongoing expansions. As a reminder, LIVEN's 2023 capital expenditures are anticipated to be $325 to $375 million, slightly higher than 2022, and are supported by adjusted cash flow from operations projected to be in the range of $360 to $440 million. Our balance sheet and overall liquidity remain very strong. We ended the quarter with $116 million in cash and no draw on our $500 million revolving credit facility. The combination of our current cash position, our ability to draw on the credit facility, and a strong outlook for cash generation give us continued confidence in our ability to internally fund our capacity expansions. On slide five, we reaffirmed Liban's full year 2023 guidance range after increasing projections with our first quarter results. We continue to expect a substantial improvement in financial performance compared to 2022, leading to another year of record results. For the full year, we project revenue to be in the range of $1.025 billion to $1.125 billion, and adjusted EBITDA to be in the range of $530 to $600 million. This implies revenue growth of 32% and adjusted EBITDA growth of 54% at midpoint versus 2022. Our guidance continues to be based on higher volume sold and higher average realized pricing across all leaching products, partially offset by higher anticipated costs. We expect the second half of 2023 financial performance to be broadly similar to the first half of the year. But as you have seen with LIBEN in the past, the cadence of our earnings can be very different, especially given different product and customer mixes from one quarter to the next. When evaluating what could potentially impact full year results, be it towards the high or low ends of our guidance ranges, it largely comes down to volume and pricing. Total volumes in the second half of 2023 were always expected to be higher than the first half for Leibniz, driven by our initial phases of expansion coming online. This includes our first 10,000 metric ton expansion of lithium carbonate in Argentina, which is largely complete and includes the commissioning phase, and we see a new 5,000 metric ton lithium hydroxide line in Bessemer City, North Carolina, that was completed at the end of last year. Due to the nature of a ramp-up in Argentina, most of this incremental sales volume will be weighted towards the fourth quarter, meaning any delays could result in a portion of production increases rolling to 2024. Equally, we had always expected market prices to decline through 2023, especially compared to the fourth quarter of last year. resulting in slightly lower realized prices in the second half compared to the first half of 2023. Despite this, we continue to expect that Leibniz will see meaningful average realized price improvements in the full year 2023 compared to 2022. Ultimately, the magnitude of this improvement will be determined by how the retail market evolves over the remainder of this year, and particularly in the fourth quarter given our volume cadence. While we achieved higher lithium prices in the first half of the year versus initial expectations, and the market continues to feel healthy, our guidance does not assume any notable near improvement in lithium prices from current levels. As a reminder, roughly 70% of our 2023 volumes have prices that are fixed for 2023. on terms that were set prior to a fourth quarter earnings release. And many of these are under firm take-or-pay commitments. As a result, we have a high degree of confidence around a 40 percent average expected price increase across these volumes. The remaining 30 percent of volumes have varying levels of exposure to the lithium market price. The 730 volume allocation between firm fixed price commitments and market price exposure opportunities allows us to strike a balance of walking in higher prices for 2023, while retaining flexibility to elect which product line to focus on, carbonate or hydroxide, and even chloride or metal versus butyl lithium. It also allows us to retain potential additional upside as we move into 2024. Finally, while we expect higher costs in 2023, we anticipate meaningful margin improvement versus 2022, largely due to pricing, which will more than offset these higher costs. Compared to the second quarter, in addition to higher projected royalty payments in Argentina, we expect to temporarily face higher costs the commissioning and ramp up of our new production units in the second half of the year.

I will now turn the call back to Paul. Thanks, Roberto.

While not as extensive as our typical remarks, I do want to make a few comments on current lithium market dynamics. We've seen the historically high lithium prices at the end of Q4 of last year fall to what we believe are more sustainable levels in the last two quarters. The floor on pricing, which is likely set by high-cost producers in China, seems to be settling at above $30 per kilo in China, based on public data points. And we expect this to be the case through the rest of this year and into 2024. However, we also can see that there are likely to be price spikes above this level into the foreseeable future, driven by inevitable demand movements and supply interruptions, both of which can be driven by multiple Hard to predict factors. Underlying fundamentals, ignoring these short-term movements, remain the same, which is an overall market that is, at best, tight. When looking at the higher performance qualified material market, such as battery-qualified hydroxide, quite likely short of sufficient supply for several years to come. Given these market characteristics, we have remained consistent in our realized price forecasts for the year. with average prices in the second half of 2023 lower than what we saw at the end of Q4 last year and into Q1, but still significantly higher than what we have ever seen historically. Turning now to slide six and a few operational updates for Livent. As you may have heard during the quarter, in the early morning of Monday, June the 26th, a fire broke out at Livent's 800-acre manufacturing facility in Bessemer City, North Carolina. The fire was largely contained to a warehouse that was used primarily to store lithium metal and is located away from most of our operating facilities at the site. Most importantly, there were no injuries to Libent personnel, emergency responders, or members of the surrounding community. Libent carries adequate insurance for this type of event and is working with its providers to assess the damage and applicable coverage. there is expected to be minimal impact on financial results from the incident. The company was able to resume operations at Bessemer City within just two days of the fire, and lithium hydroxide, butyllithium, and catalyst-grade lithium metal production lines were quickly back to normal operating levels. There is one business we have periodically discussed that may take a few additional months to bring production back online due to impacts on shared infrastructure, and that is high-purity lithium metal. However, this product is very small from an earnings contribution standpoint. Turning now to Libem's ongoing expansion efforts that will have meaningful volume growth for the company over the next few years. Beginning with hydroxide, towards the end of 2022, we completed a 5,000 metric ton expansion in Bessemer City, bringing total capacity at the site to 15,000 metric tons of hydroxide. The new unit has been producing initial material while getting qualified with relevant customers, although we do not expect meaningful volumes until our first carbonate expansion phase in Argentina ramps up in the next few months, as this will be used as feedstock for the unit. Construction also continues to progress well on a 15,000 metric ton lithium hydroxide facility at a new location in the province of Zhejiang in China and is on track for completion by year end. First commercial volumes from this unit are expected in 2024, and it will double our capacity in the country while taking our total global lithium hydroxide capacity to 45,000 metric tons. In Argentina, work continues to progress on our two equal 10,000 metric ton phases of lithium carbonate expansion. Having recently completed our first phase, we are now in the commissioning stage of bringing online this first 10,000 metric tons of production. We expect first product to be generated in the third quarter with a ramp up to commercial quantities of carbonate in the fourth quarter. We expect to complete our second 10,000 metric ton phase in Argentina before the end of 2023. This will result in our nameplate lithium carbonate capacity being double that of 2022, approaching 40,000 metric tons. It will also have us largely balanced between lithium hydroxide capacity and our carbonate production capabilities to feed it. I'd like to spend a little bit of time talking about Namaska Lithium on slide seven. As a reminder, Namaska Lithium is an integrated 34,000 metric ton lithium hydroxide project located in Quebec, Canada, in which Livent is a 50% shareholder. Earlier this year, after completing the detailed engineering phase and receiving approval from the Namaska Board, The project entered its current construction phase, which includes the acceleration of mining operations at Wabuchi. Commercial production and sales of spodumene concentrate are expected to begin in 2025 and will continue until the hydroxide facility comes into full production. Initial production of lithium hydroxide is expected in 2026. Total capital requirements for project development are estimated to be approximately 1.6 billion U.S. dollars, with the upstream Wabuchi development comprising roughly $400 million of that total amount. We anticipate the majority of this capital to be spent in 2024 and 2025. Project operating costs on a fully integrated basis are expected to be very competitive with other comparable lithium production assets. The Damasco lithium project continues to be highly attractive due to its relative cost position, strategic location in North America, and first mover advantage for hydroxide in the region, and its favorable sustainability profile with access to low-carbon hydroelectric energy. Sources of funding for project development are expected to include a combination of prepayments from customers, various sources of government funding, third-party debt financing, and contributions from Namaska Lithium's two current shareholders, Livent and Investement Quebec. At this time, Livent does not expect its own funding contributions for the project development to exceed 10% to 15% of total needs, and these capital contributions will not all be delivered up front. This level of funding is consistent with the press release made by IQ last month, where they highlighted a commitment of $250 million Canadian dollars in capital to help fund the project, which will also be contributed over time as needed. After Libent was appointed to engage in the sales and marketing efforts on its behalf, Namaska Lithium announced its first customer agreement with Ford in May. The agreement calls for the delivery of up to 13,000 metric tons of lithium hydroxide per year over an 11-year period, with the sale of spodumene concentrate from the Wabuchi mine to Ford until lithium hydroxide production is ready in Beckencourt. Both companies and Liven are committed to supporting the development and growth of the North American battery supply chain, and we are appreciative of Ford's strong commitment to the project. We've also mentioned in the past that there is additional land available at the site in Beckencourt that add future lithium chemical production. with additional line expansions also likely to be quicker and more capital efficient. One of the main considerations to do this would be the ability to secure enough lithium feedstock material to feed the additional units on an integrated basis. I'd now like to spend some time highlighting Liven's pending merger of vehicles with OrCam that will create one of the leading global lithium chemical companies. For a much more in-depth review of the proposed transaction, I encourage you all to review the transcript from our prior call on the May 10th announcement day, as well as the materials available on the Libent Investor Relations or the merger website. However, I would like to reiterate the extremely compelling strategic rationale for the transaction, which has only grown in the last few months. The transaction delivers a step change in all of our critical objectives, and the merits can be most easily summarized in the following three points. It greatly increases our scale with an expanded geographic footprint and a combined lithium deposit base that ranks amongst the largest in the world. It immediately enhances our vertical integration, bringing together complementary businesses and areas of expertise that can deliver meaningful operating synergies and capital savings while both accelerating and de-risking our development plans. And finally, both companies contribute highly attractive growth profiles in similar geographies that are truly unparalleled when combined. We expect the merger will enable us to unlock significant value creation for shareholders, while enhancing our position within the lithium value chain and increasing our relevance to a global customer base. As you will see on slide nine, both companies have been working diligently since the announcement to be in a position to close the transaction as quickly as feasible so that the new code can begin to deliver the various benefits. Key milestones have continued to progress. All pre-closing regulatory notifications and applications or draft filings as applicable have been filed in required jurisdictions by Livent and OrCam, including both antitrust foreign direct investment. Additionally, a preliminary S-4 registration statement was filed with the SEC on July 20th, which provides important information about Livent and the proposed combination. The NUCO Board nominees were also announced earlier this week. The NUCO Board will be comprised of six nominees from the current Livent Board, including myself, and six nominees from the AllChem Board. including Peter Coleman, who will serve as chairman of the new co. As far as key next steps are concerned, all PEM investors are awaiting a scheme buckler for the proposed transaction, which is the Australian equivalent to the S4 in simple terms. This scheme buckler, which will include the independent expert report, is expected to be finalized and sent to investors early in the fourth quarter. Once all relevant documentation is distributed and approved by the applicable regulators, each of Livent and Orkem will seek approval from their respective shareholders as special meetings expected to take place within a day of each other in the fourth quarter. Subject to positive votes, as well as all other required approvals and closing conditions, which both parties believe can be achieved by the end of calendar year 2023, the transaction will move to closing. We're encouraged by all of the progress made today, by the positive feedback we've received from shareholders, customers, and other stakeholders so far, and we look forward to keeping you updated as we reach critical milestones and have more information to share on various fronts related to the merger. I want to conclude on slide 10 by providing some commentary around Liban's latest ESG efforts. Liban recently published its 2022 sustainability report with the theme of reimagining possibilities. It reflects the company's commitment to responsible production and expansion to an ongoing focus on environmental stewardship, social responsibility, and transparency. Among the highlights of the report are an initial global scope three screening of live and screened gas emissions, first disclosures on global air pollutants, and a summary of recent water and biodiversity studies that were conducted at the Salar del Hombre Huerto in Argentina alongside some of our key customers. Our report follows leading disclosure frameworks with key ESG metrics reviewed and assured by a third party. We will continue to prioritize corporate social responsibility within our operations, supply chain, workforce, and communities, and do our part with customers and partners to support a low-carbon future while minimizing environmental impacts. I will now turn the call back to Dan for questions.

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

At this time, if you would like to ask a question, please press star, then the number 1 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, again, press star 1. Thank you. Your first question comes from the line of David Deckelbaum with TD Cowen. Your line is open.

Thanks, Paul, Gilberto, and team. I appreciate the time this afternoon, and best of luck with the closing of the all-chem deal. I did want to just check in on Encelar-Umbre and see if I missed this, if you could just be explicit about how many volumes you're including in your updated guidance. Previously, the thought was that you'd see 4,000 tons contributed this year. With commercial sales in the fourth quarter, should we be shading down towards three? That's sort of implied in your guidance with some wiggle room there around, I guess, some upside on timing. And should we still think about the same timeline for the phase two process commissioning?

Yeah, good question, David. You're right. It's probably closer to three than four, given where we are at the moment in terms of ability to drive commercial sales. I'm sure you can appreciate starting up these operations is a complicated process. And while I'm pretty happy with the progress that we've made so far, it's pretty difficult to predict within a couple of months as to exactly when you iron out all the kinks in the startup. So it's around 3,000 tons is about the right number for the rest of this year. The second phase, I would really hope, the whole point of doing two phases is that we learn as we go. And so there's no doubt that we already recognize how to accelerate the startup for the next phase and we'll be putting those plans in place. So I certainly expect that we will be bringing the second phase on from mechanical completion to commercial production quicker than we will the first phase. Thanks, Paul.

My second is just I wanted to just clarify the comments you made where it sounds like you anticipate Liven's net share of build out at Wabuchi and Beckencourt under Damasco to be roughly $160 to $240 million. It sounds like the other financing might reimburse you for costs over time. I just wanted to clarify that and then maybe get a sense of what we should anticipate in terms of timing when you think these solutions might be more publicly apparent?

Yeah, look, if you think about the financing, I'm going to break it into four buckets, right? Bucket number one is customers contributing cash advances to them on the NASCA's commitment to them. Their commitment back is to help with the financing, to be perfectly honest. And that's something we certainly expect to be a part of the funding for NASCA as we go forward. The second is what I'm loosely going to call government money, and I think it's a relatively new phenomenon in our industry that there is money available in various forms, in various jurisdictions to help accelerate these investments. We create a lot of jobs, create a lot of revenue, and having an integrated battery industry is pretty important in many areas, including in Quebec and abroad. So we certainly expect there to be some government capital Then the good old-fashioned last two is third-party debt financing, built on the fact that if we're producing to concentrate in 2025, we'll be cash flow positive, revenue positive by then, so the basket can in fact start to its own third-party financing, and the gaps will be filled by investors contributing new equity, which is split equally between ourselves and IQ. You should expect as we go through the rest of this year and into next year, as we get more certainty on Each of those pieces, we'll disclose them with our earnings as we go.

Thanks for the color, Paul.

Good luck with everything. Thanks.

Your next question comes from the line of Matthew Dio with Bank of America. Your line is open.

Good afternoon, everyone. If I look at

Well, I don't know. I hate to ask you this, but if I look at the S4 and some of the disclosures around the agreement with Alchem and the path laid out, we get a lot of questions around some of the projections that were put out there. There's a forecast for a billion dollars of EBITDA in 2024 based on $25,000 or $35,000 a ton lithium hydroxide, etc. It's well ahead of the consensus and perhaps some of the numbers that people were playing around with. So as it looks like from an OPEX perspective or from a contracting adjustment perspective, is there anything there or is that just a difference in assumptions? I don't know.

Yeah, look, it's important to understand exactly what that is, right? When we're looking at mergers of equals, one of the first conversations we have to have is, putting essentially both our business and Alchem's business onto a similar footing for a comparable analysis. And so the starting point was to agree a price deck. And that price deck doesn't necessarily have to be the prediction of Liven or the prediction of Alchem. I'm sure you can imagine we have probably slightly different views in slightly different areas. It just needs to be a reasonable one based on market conditions at the time, based upon a range of forecasts by independent forecasters doesn't look completely crazy. I think 35,000 tons today certainly doesn't look completely crazy. I think the average price, and by the way, that price is for third-party uncontracted volumes, right? It doesn't include anything that we already have contracted or committed. So, yeah, maybe a little bit ahead of where consensus is, but it was designed to be a reasonable approximation of where we thought the market would likely be in 2024, and it doesn't seem a long way off. Look, mathematically, to get LIBEN to a billion dollars of EBITDA is not that complicated when you do the volume increase that we just talked about. You see a step up in our average realized prices, which, by the way, in 2023 will not reach $35,000 per ton of hydroxide. And so it's not. It only is a particular heroic stretch to see a billion dollars of EBITDA next year. That's not our forecast. The S4 document doesn't represent the LIBEN forecast or an OPEM forecast. forecast. But certainly, I think those assumptions in there today, at least, still look pretty reasonable to me.

Understood. And I was a little late to join the call, so maybe I missed this a little bit. But the conversion facility, obviously, these numbers are perhaps a bit more normal these days as it relates to CapEx intensity and what we're looking at dealing with the West. But if you were to kind of highlight some of the big buckets for inflation between I think what was originally maybe $700 million for the downstream, and now it's $1.2 million, where you kind of ran into pockets of higher spending.

Where do I start? Okay.

Yeah, it's too much long.

I think the starting point, frankly, is I'll make this comment as a broad one, but it certainly applies to a degree to Nebraska as well, which is I think there's a lot of learning in the engineering of these projects. I think a lot of people are overly simplifying the engineering and coming out with forecasts before that engineering has been really fully vetted and tested. And we've seen some of the challenges of not fully engineering these projects, rushing to get them built more quickly. There's a couple out there that just don't work because they were not engineered. And you can't retrofit them. So you have to get it right. I think some of the forecasts that were out there, and I would throw the Nebraska forecast into this bucket, were probably premature. I think the industry has a tendency to apply standard factors as to where we are in the engineering and what typically the eventual cost would be, plus or minus 50%, plus or minus 20%. They don't seem to apply that well to lithium projects. And part of that is this learning curve on the engineering. Part of it has been some pretty significant increase in the cost of things like materials, particularly commodities have moved around, steel and other commodities. There's certainly been an increase in the cost of certain key, we call them long lead items, but some of the engineered items that are actually in so much demand that the producers of those can barely keep up. And as you can imagine in that scenario, the cost of them goes up. And then the final point is the cost of construction. And it's largely a function of time. I think what you see very quickly on these projects is the longer it takes you to build them, very quickly the cost estimates go up. And it's a not insignificant factor is that projects that people might say take two years to build, if it takes four years to build it instead of two, your costs are really going to escalate quickly. And so the sum of that at work as well. And these are not all specific comments on Damascus. These are broad comments on, I think if you look around our industry, the factors that have really driven the increased capital intensity. I don't see them coming down anytime soon. I don't see a learning curve benefit anytime soon or a reduction in some of these factors. I just think we're now starting to do a better job of understanding and therefore describe what the real capital intensity of an integrated lithium project is.

Your next question comes from the line of Christopher Parkinson with Mizuho Securities. Your line is open.

Great. Thank you. Paul, I was just hoping you could give us a little bit more color on slide seven. You kind of had this helpful outlay of both the spodumene aspects of NAMASC as well as the hydroxide plant. Just, you know, what's your degree of confidence in terms of the commercial production dates? You know, what in terms of, you know, your own history in the industry kind of gives you, you know, the confidence to put those out there and how we should be thinking about them and what progress, you know, the investment community should be monitoring over the next

year or two to you know further underscore those in our models thank you thanks chris uh look i think that confidence uh the confidence is highest in broad concentrate much higher than it is in in the time in lithium hydroxide part of that is just a simpler simple process and more advanced and also i'm obviously more confident on a 2025 date than a 2026 day I think one of the key variables really to watch out for, for me at least, will be the mining. We've got to get the mine up and running, and I think that'll be pretty easy to monitor. And on the lithium hydroxide plant, it's actually getting it built and getting the commissioning started. Hard rock lithium hydroxide plants don't start up overnight. I think the commissioning process on that plant will be slower than it would be for us, at least certainly on a carbonate to hydroxide plant, which is relatively quick. And for us, at least, slower than it will be on a brine-based carbonate plant, given the process that we use in the brine-based carbonate. So my biggest uncertainty, frankly, on the lithium hydroxide plant is the pace at which we can start up. And it isn't just, will it take me nine months or 12 months? It'll also be how much can I produce during that start-up process and what quality it is. So I think 2026 into 2027 is the key window when you need to be watching out for the success or otherwise of that project on the hydroxide side.

Understood. And just a very quick follow-up, just going back to the S4 registration for Alchem. When we're taking a step back and just looking at the initial synergies and kind of the integration process in the first one or two years, I'm sure you've done a lot of work on this since the deal was initially announced a few months ago. Can you just kind of give us a quick update on your personal thought process on what needs to be done, what can be done, how quickly it can be done, as well as areas of potential upside, just the more you've been able to dive into the numbers? Thank you.

I think there's two steps. I think the first and most important focus is what many of you will recognize as sort of a day one readiness program. We need to sort of hit the ground the day it closes and be able to operate the two businesses as they currently are. And as part of that process, have a plan in place to tackle the cost savings, the more basic, if you will, cost savings, cost synergies that we've presented. And that work is advancing, and I'm very confident, given the experience of both the Orkin management team, given their previous merger, and our management team, which, while a separation is not exactly the same as many of the same processes, that we'll tackle that pretty well. I think the second thing is to sort of take a long, hard look at the business and make sure that we develop an operating model for the business that does not look like a hybrid. It has to be one that reflects the asset base and the operational capabilities of the two organizations. That takes a little bit more time, but it's probably got the biggest upside, too. I think running the business truly as a collection of integrated assets carries the most upside, and that's the area of my own personal focus today. in the period post-closing is how quickly do we move to a business that doesn't look like Liven and it doesn't look like Old Kim and doesn't look like some kind of hybrid mix of the two. It looks like a truly new company and is being run the most efficient way relative to the asset base and the operating model.

Thank you.

Your next question comes from the line of Chris Katsch with Loop Capital Markets. Your line is open.

Yeah, good afternoon. So I wanted to ask a question following up on, Paul, on your commentary about when you're characterizing the market, talking about, you know, the structural tightness, and there is an inference there that, you know, the battery-grade chemicals are tighter, the inference being maybe that's skewed more toward hydroxide versus carbonate, especially, you know, when you hear the discussion about the challenges associated with with ramping a lithium hydroxide conversion, just like you're talking about in the context in Damascus. But then separately, you talked about how as you ramp your Argentine capacity that your intent right now is to kind of keep it balanced between converting downstream into hydroxide and having that carbonate sort of optionality. So I'm just wondering if you could sort of reconcile that. If the market is more tight and your customers are asking for more battery-grade hydroxide maybe, then, you know, wouldn't you be – wouldn't that inform your sort of, you know, your roadmap in terms of capital allocation as you ramp your capacity? Thanks for taking the question.

Yeah, look, you know, well, Liven – the standalone Liven has always been, as you know, focused on the hydroxide market. It's where we think we have the biggest competitive advantage, the most capability to add value, and it fits our business model of building close customer relationships. Our historical approach to producing lithium hydroxide, though, interestingly does have this capability to, to a degree, you know, swing between carbonate and hydroxide if the market demands. And that actually will be even more the case if we have 30,000 tons of capacity in China, which is incredibly low capital and low operating costs. And frankly, It doesn't have to be run all the time, and if there's opportunities in carbonate in the future, we'll certainly be able to take advantage of them. But you're somewhat tempered in your ability to do that because to produce real high-quality lithium hydroxide that the customer is willing to commit to, they want a commitment from you that you're not just going to be speculatively moving it at the hydroxide market. So we do see the hydroxide market as bringing more price stability. We do see the hydroxide market, and we've seen this certainly this year, but often a meaningful premium over carbonate most of the time. It doesn't mean the carbonate market is not quite capable of becoming incredibly tight and having some real price spikes that blow past hydroxide at times. Absolutely will happen. Just don't see it as a long-run sustainable position to be. I also think there are opportunities. I think we can learn from people like Olkem who you know, focused more on producing volume in these markets than necessarily worrying too much about it all being battery grade, because there isn't always a massive price difference in carbonate between battery grade and non-battery grade. To be clear, in hydroxide, there isn't really a market for non-battery grade hydroxide, really, not of any scale. So it's got to be battery grade or nothing. But, you know, these are all the factors that we continue to think about. including, by the way, through the metals chain, as I'm sure you know by starting with chloride, we have that other branch we can head down and produce chloride-based chemicals as well, metals and others. And so I think this is going to become, in the future, Chris, an increasingly complex operating model, which is a good thing because I think it really reflects the fact that there's opportunities for us to be constantly optimizing our profitability per LCE while at the same time having a differentiated footprint in what we think will be the highest value market, which is lithium hydroxide.

That's helpful, Collar. I appreciate it. And then just to follow up on that, though, is, you know, the engagement with your customers, just curious if it feels like that the demands in Asia skew towards carbonate and in North America, you know, like, for example, the the engagement with Ford skews hydroxide, or is that an oversimplification? Do you think there'll be a bifurcation in that direction or not necessarily? Thank you.

I think the engagement with the major OEMs is very much hydroxide driven, right? Because I think they see that as the area that requires the most involvement by them to make sure that they have reliable, secure supply chains. I think they have little bit more confidence that carbonate will be available for their carbonate-based batteries. And to be clear, all of them have both high and low nickel battery models out there and running. I think in terms of by region, it's a little bit more complicated because I think a lot of the really high nickel, high quality cathode plants are in Korea and Japan, but there's still a lot in China too. I think a lot of the carbonate-based low nickel, I mean, it's all in China, frankly. So you sort of have this weird dynamic that If you're taking carbonate into a battery chain, it's almost certainly going into China, whereas hydroxide does actually have more places that it can be processed into the high nickel applications.

Thank you.

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

Thank you and good evening. Would you provide an update as to the percentage of your lithium hydroxide business that you've entered fixed price contracts for 2023 and also 2024, if you would?

Yeah, so as we've disclosed, about 70% of our lithium hydroxide this year is contracted and the price has been fixed for 2023. 2024 pricing, the majority of that is still largely up for discussion with those customers. It almost certainly will be fixed for next year, but it will not be fixed at 2023 prices. Okay. Thank you for that. To be clear, Kevin, it's almost certainly going to be higher in 2024 than in 2023.

Very good. And then I wanted to ask about your capital expenditure plans or the profile beyond this year. Presumably you have some spend rolling off in Argentina and you've quantified some of the cash that you expect to expend for Namaska. You know, if you kind of net all that out, do you think your 24 budget would be likely to trend flat up or down versus this year's range?

Well, the first thing I would say is I feel like spending never turns up in Argentina. It just gets replaced by another set of spending. You know, we have at least two or three more phases to build in Argentina. So, yes, one phase ends and another one rolls in. And while the next phases tend to be more capital efficient because they take advantage of the infrastructure, they're going to be bigger. So the capital need is still not massively diminished. Excluding Damasco, I think we expect capital requirements in next year to be sort of largely flat with this year and probably the same going into 2025 as well. And then there'll be Namaska spending on top of that. So I think in aggregate, we'll see the capital spend across both Argentina and Namaska together, probably slightly higher than we saw in 2022 and 2023. Now, that could change if we had more lithium hydroxide plants, which is entirely possible.

Okay. I appreciate the color. Thanks, Paul. Your next question comes from the line of Alexey Yefremov with KeyBank Capital Markets. Your line is open.

Thanks. Good afternoon, everyone. Paul, you made a comment that there's probably more rationale behind the all-chem deal now over the last few months. Could you elaborate what you meant by that comment?

Yeah, look, I just think the need for us to be large and credible with customers has definitely been reaffirmed by our conversations with customers and how they are looking for more reliable supply and supportive of anything that helps them have more choices, more options, and more material available to them to support their business models. And I think we can also start to see, as we start to dig in a little more closely, opportunities across our asset base to integrate them more closely, not just the capital, but also integrate the operations and the commercial strategy across a wider, more dispersed set of products that we can produce and offer. So, You know, I think it's like anything. You sort of see the logic. You do your arm's-length dance. Once you can actually start to do a lot more detailed planning, it's starting to play out and show us that there's really quite a lot there to be shot for and to benefit from as we put these two companies together.

Okay. Makes sense. Thank you. And then on your first 10-kiloton expansion in Argentina, should we assume it's running close to full rates next year? or there's a longer?

No, no, it's a reasonably quick ramp, particularly in the summertime down there, so you should assume that that's running at full rates next year, yeah.

Got it. Thanks a lot.

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

Hi, good afternoon. Paul, a couple questions. Just following up on the S4 question, some of the projections, that you put into that. And I understand the presentations for certain purposes. I just wanted to ask about the 2024 projection for live. And I think it was about a billion dollars EBITDA. Could you just tell me, is the rationale there to show like the best case scenario? You gave the pricing deck, so we know what that is. I think it was 25 hydroxide and 22 carbon, if I recall. But is that where you assume... all your capacity is running full out, including your current hydroxide expansions and your carbonate expansions in Argentina. Everything ramps up day one, boom, 100% day one. Is it like the most idealized production scenario? Could you just give some sense of what that $1 billion means?

No, look, it's not an idealized anything. I think it's designed to be a representative model, not a forecast, but a representative model. And be that it has to have realistic estimates of when production would come online, what kind of volume it would be, what form it would be in hydroxide or carbonate, just as much as it needs to be at least a reasonable justifiable and defensible pricing forecast. So it's certainly not what I would call an overly simplistic desktop model that you just apply math to. It actually does reflect when the model was produced what our best estimates would be of the production profile of liven in 2024. Okay, thank you for that.

So my next question is, so it's interesting, you know, you're able to hold your full year guidance range exactly the same. In the last few months, you've seen obviously quite volatile pricing, right? We've seen carbonate and hydroxide prices move up a fair bit from April to June and start to roll lower. And you know, I know you've got a lot of fixed set pricing this year, the majority of your volume, but it's interesting that, you know, you didn't have to change your range at all. Can you just talk about that? Despite all the volatility in price, you didn't have to, your range is exactly the same.

So look, I like to think that we're not completely blind to what might happen in the market. And while no one can predict it perfectly, I think directionally we're not too bad at predicting what we think is going to happen in the market. If you actually follow the logical flow behind what we've assumed in there and you look at what our EBITDA is for the first half of the year and then what the assumption might be for the second half of the year, given we have an expectation of more volumes coming in in Q4, you can see that we've factored in what we think the pricing environment is in fact going to look like. It's not. We've never claimed. We don't take a Q4 price tag, stick it in the model for the following four quarters and use that as our guidance. Didn't take a Q1 price tag, and so on and so forth. We do look for, we look at our customer mix. Our customer mix, as we know, by quarter can vary meaningfully. We have a lot of predictability because of where we know pricing is in those hydroxide contracts and in our Beaulieu and other specialties customer base. We can probably more than most today at least, we'll debate whether this survives many more years, but today at least we can have a reasonable degree of confidence as to what the sort of base profitability of our business is likely to be. Now, you'll also recognize we didn't change our guidance, but we didn't change the range either, right? And so we recognize with half the year left, the range is still as wide as it was before. And that is designed to at least capture some concept that there will be some variability in pricing, which, while we're not linearly related to it, will, of course, impact us if prices are significantly higher than our assumption or significantly lower. The price, the guidance range is designed to help us capture that.

Thank you.

Our last question comes from the line of Corinne Flenshardt with Deutsche Bank. Your line is open.

Hey, good afternoon. Thanks for taking the time and the question. Could you just help me or help us understand maybe the cost profile into 3Q and 4Q? I believe you had mentioned expecting a gross margin of 52% or 53% for the year. So just to understand, when does the cost increase hit? Is it 3Q and 4Q like heaven, or is it more toward the end of the year?

Hi, Karine, it's Roberto here. So the cost increases that we're anticipating for the second half, again, as we are navigating through the year and we are using more and more of new or raw materials, we have seen a lot of price increases in key raw materials like soda ash, and they're materializing more and more. So, for example, raw material like soda ash is going to be impacting equally Q3 and Q4. Energy in Argentina, some labor costs in Argentina as well. When you think about ramp-up in costs as we're commissioning the plants, they might be more in Q3 and actually in Q4 as we ramp up the production, particularly in MDA in Argentina where we're going to have a lot more costs. So I'll tell you that I think Q3 might have a little bit more cost impact compared to Q4, but they're going to be certainly higher than we had in the first half of the year.

Okay, that's helpful. Keeping up with numbers, but you had a significant adjustment, right? Like, I think 19 million or so related to the transaction. How do we think about it for Switzerland and Tokyo? Was it just like a one-time off, or would you have a little bit more coming through?

Actually, can you repeat the question?

I'm not sure I understood the question.

Yeah, the 19 million or 18.8 transaction adjustment that you had for the EBITDA calculation, Is it just a one-time off for 3Q, or should we expect more coming in 3Q or 4Q?

No, there will be more costs for the transaction coming in Q3 and Q4, for sure. But those are excluded from our adjusted EBITDA, as you probably know. But there will be more costs related to transactions, for sure, particularly as we start our integration effort with Alcan.

Okay, thank you. There are no further questions.

I'll turn the call over to Daniel Rosen for closing remarks.

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

This concludes the LiveIn Corporation second quarter 2023 earnings release conference call. Thank you.