Sociedad Quimica y Minera S.A.

Good morning and welcome to the SQM Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Isabel Bendek, Investor Relations. Please go ahead.

Thank you, operator. Good morning and thank you for joining SQM's Earnings Conference Call for the Third Quarter of 2024. This conference call will be recorded and is being webcast live. Our earnings press release and presentation with a summary of the results have been uploaded to our website where you can also find a link to the webcast. Ricardo Ramos, our Chief Executive Officer, will be speaking on the call today. Gerardo Llanes, our Chief Financial Officer, Carlos Díaz, CEO of SQM Salar, Mark Fones, Felipe Smith, Commercial Vice President of SQM Salar, Pablo Hernández, Senior Director of Business Strategy and Development of SQM Salar, Pablo Altamira, CEO of Iodine and Nitrates, and Juan Pablo Bellolio, Commercial Vice President of Iodine and Industrial Chemicals, are also available to answer any questions. Before we begin, I would like to remind you that some of the statements made during this conference call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses, and other financial items are considered forward-looking statements. Please note that the same cautionary language used in our press release and presentation also applies to this call. Now I will leave you with our Chief Executive Officer, Ricardo Ramos.

Hi, thank you. Good morning, everyone, and thank you for joining us today. We have published our third quarter 2024 financial results with positive volume growth in almost all our business lines compared to last year. Specialty plan addition has shown solid dynamics with a market-sized recovery. Volumes in this business line were more than 20% year on year, increasing our revenues by more than 12%, despite lower prices seen during this period. We are positive in the specialty fertilizer market and foresee stable price behavior in the midterm. In iodine, we have observed a subtle but continued price increase since the beginning of the year. We believe that strong demand growth and limited supply could lead to slight price increases in the coming quarters. We continue to work hard in several projects that should increase our production efficiency, and the seawater pipeline, which will enable us to increase capacity, is moving on schedule. In lithium, we are proud that we post our first revenue coming from Moon Holland, and today begins our first Spodumene concentrate biting event. With this initiative, SGM International Lithium expects to promote fair and more transparent pricing information, enhancing the lithium market efficiency. The refinery is under commissioning and is scheduled to start operating in mid 2025. Regarding our lithium sales, we reported sales volumes of more than 51,000 metric tons of lithium products and 18% growth year on year, demonstrating a strong demand in the market As anticipated, prices during the third quarter continue the downward trend, with average realized prices 24% lower than the second quarter this year. Although demand continues to grow at a strong pace, mainly driven by strong EV sales growth in China, we continue to see the prices pressured by a temporary oversupply, which has been decreasing considering the production curtailment announced by other market players. We believe current market prices are far from equilibrium given the fact that demand keeps on growing at a strong pace while current prices are significantly below the incentive price required for projects announced by different players in the market. Our more than 30 years track record in the lithium industry has proved that we have a long-term view in this business, and therefore we strongly believe in the lithium market needs fundamentals which are highly related to the clean energy transition that we're living in is in a strong competitive position and well prepared to continue developing our projects in Chile and abroad to harvest the benefits of this transition. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Joel Jackson with BMO Capital Markets. Please go ahead.

Hi, good morning, Ricardo and team. I'll ask a few questions. So my first question would be, you call out in your prepared materials about the industry having some curtailment. You've maintained your own sales guidance for this year, 190,000, 195,000 tons. Pricing is still going down. Does SQM need to cut share here, cut volume to help support the market? Can prices recover if all the players in the industry don't cut volume?

Hello, Joel. This is Felipe. Well, indeed, this year, we are expecting to reach sales volumes close to 195,000 tons. And for next year, we're not planning any curtailment, I think you asked for. We are just planning to increase our sales in line with increasing production.

Okay, that's extremely obvious there, direct. Thank you. Okay, the next question I have is, you talk about what's going on in Australia. So you're ramping up Mount Holland, Spodumene. Did you have any sales in the quarter? It looks like in your release, maybe you did. What's your guidance there as you're starting to get close to ramping the conversion plants? Do you feel comfort in conversion profitability at that project? And you see a lot of competitors taking down Australian capacity. They're cutting Spodumene volume, they're cutting conversion capacity in Australia. Might your joint venture have to look at that as well?

Hi, Joel. This is Mark Fones here. Yes, we continue, as you mentioned, to ramp up the Mount Holland project. The concentrator this year is going to produce volumes in the range of around 110,000 to 130,000 tons of Spodumene concentrate. That's .5% lithium oxide content. And that project continues to ramp up into next year. We've seen monthly production rising on a steady state over the last few months, and we expect that to continue to the future. Regarding our conversion plant, also consider the numbers I've just mentioned is 100% for the whole joint venture. So that's 50% for each shareholder. In regarding to the conversion plant you mentioned, the conversion plant today is 91% constructed, completed already. We have already started commissioning of the Queen Anna refinery plant. Remember, this is a plant with a capacity of 50,000 tons of lithium hydroxide per year for, again, both partners. And commissioning is today above 41% completed. We expect that first product will arise in mid-next year, again, aligned with previous plans. So confirming our previous plans, we don't have changes. And as Felipe already mentioned, we continue to have ourselves aligned with production.

Okay. And my final question on that would be considering all the experiences of your competitors, Queen Anna, competitor conversion plants in Australia, Queen Anna, Camerton, seeing what's happening there. Have you thought about the possibility that the conversion plants, your conversion plant and the joint venture could be negative profitability, have startup issues like the rest, and could you consider then if that's the case, what would make you decide to instead toll the spodumene in China to get better profitability?

Let me provide a few points there. First, while the Queen Anna refinery is not yet at steady state production, we continue and are tolling today in China. We will remain flexible in that aspect that we choose to sell either spodumene concentrate or lithium hydroxide in this near term future. Regarding your point of other experiences of our neighbors, I cannot comment on that. I can tell you that we have done from the beginning of the project everything possible to assess all issues potential that could arise in the commissioning and production of refinery and Queen Anna refinery. We have done great extents of additional engineering, design, and workshops to assess those potential issues. We expect those not to happen for us. Of course, commissioning is a high challenge. It's a risky period of any project, so we remain attentive to any issues that may arise in the future. Regarding the long-term value of Queen Anna refinery and the lithium industry overall, we remain absolutely confident that's what we're doing in this project. We believe in the value-added perspective of having a refinery in Australia, and we remain committed to that. Thank you.

The next question is from Ben Isaacson with Scotiabank. Please go ahead.

Thank you very much and good morning, everyone. Just two questions for me. The first question is on the lithium outlook for 2025. Can you just talk about how you see the shape of the market balance developing through the year? When do you see inventory restocking? When do you see new supply coming on, or do you expect the market to just kind of grow at a linear pace in 2025?

Hey, Ben. This is Pablo Hernandez. From the global lithium demand, we believe it remains strong. Of course, we expect it to surpass over 1.1 million this year, and more than 20% higher than last year. By the remaining of the decade, of course, we expect that lithium demand could reach around 3 million tons, and we maintain a forecast of 16% to 18% growth on a yearly basis for the next five years. The main driver of the lithium demand growth, of course, is the EV market, and the EV is more concentrated. It concentrates more than 70% of the global lithium demand today, and that share, of course, could increase to over 80% by the end of this decade. The EV penetration right now is roughly 20%, and we expect that to reach by 50% by 2030. Out of that demand, China concentrates close to 80% of the lithium demand, and the EV sales in China could surpass more than 11 million units this year and 17 million globally, if you think about EVs in 2024. In terms of the global supply, we expect that to continue growing, aligned with the demand, with some new projects potentially being disincentivized, those announced by some of our competitors, if price remain the

same. Great, thank you. And my second question is on the iodine market. Can you just give us a reminder as to the size of the market right now? How is it growing? But more importantly, how much new capacity do you expect to come online in 2025 and 26? Thank you.

Hi, Ben. This is Juan Pablo. We estimate that the market size today is around 38, 39,000 tons of iodine. The growth this year has been especially big due to the decrease of 2023, so we expect this year the demand is going to grow around 7%, driven mainly by the contrast media industry that we expect that that industry is going to remain growing for the rest of the decade, around 6%, 5%, 6% per year. And regarding the new supply, sorry, regarding the new supply, the market information that is available from our competitors is showing that we may expect some new supply by the second half of 2025 and some also new supply in 2026, but we believe that that supply won't be able to catch the increase in the demand, so we expect still a strong demand and strong prices in the next couple of years due to that imbalance. Thank

you. The next question is from Corrine Blanchard with Deutsche Bank. Please go ahead.

Hey, good morning, everyone. Two questions. The first one, can you give an update on the agreement with CODECO and how the negotiations are going with the local communities? And the second question is, can you please also explain what's going on with the ACC investigation? I think we saw a note in one of the recent 8K mentioning that, so just wondering what's going on and what could be the potential impact? Thank you.

Hello, I'm going to answer the first part of the question. Ricardo Ramos speaking. As I specify in the contract, it's came in CODECO with the, of course, public knowledge. The transaction is concluded when the conditions present are met. We are working very hard on it. We are very diligent in the process in order to do it as fast as we can. Our intention, both parties, SQM and CODECO, is to conclude the process as soon as possible. The process with the communities are moving forward according to our expectations. We don't have any specific situation that we have to report about the agreement with CODECO. It means it's moving. It's moving according to our expectation and things we expect are going to be closed as we have every single condition present and met. About the second part of your questions.

Hi, Corrine. This is Gerardo. The company is required to be in compliance with all applicable laws and regulations in Chile and internationally with respect to anti-corruption, anti-money laundering and other regulatory matters, including the Foreign Corruption Practice Act, FCPA. The company has received a request for information and subpoena from the ACC requesting information related to our business operations, compliance program, allegations of potential violations of the FCPA and other anti-corruption laws. The ACC has said that the investigation is a non-public fact-finding inquiry and we are not aware of any conclusion has been reached by the ACC. Maratreta has initiated an internal review to identify materials that are responsive to the inquiry and are actively cooperating in the ACC's review by providing the information requested.

The next question is from Gabriel Simoz with Goldman Sachs. Please go ahead.

Hi, thank you for the presentation. Thanks for taking my questions. I have two actually. So this one is on volumes. So all the year production keeps growing and so we see Mount Holland starting to ramp up. We still saw quite a little sales volume quarter over quarter, right? And you reiterated your sales volume guidance for the year at 190,000 to 195,000 tons. And this implies a significant reduction in volume for the fourth quarter. So do you want to add some more color on the dynamics for your sales and to understand what level of production you expect for this year, right? And how we should think about the potential gap between production and sales for the coming years as well, right? So this is the first question. And on the second question, we saw your lifting costs coming lower than we expected this quarter despite the fact that you are ramping up your operations in Australia. So if you want to have more color on how that operation impacts your costs, and if you could give us a breakdown of your production costs by geography, you've got to be great as well. Thank you.

Hi, Galver. This is Carlos Diaz. Let me answer you regarding to the production in SQM Sallar Chile. For this year, we expect the production is going to be close to 210,000. That means 180 is going to be producing our chemical plant in Antofagasta. And the other 30,000 is going to be produced in China in our own planning machine, plus some tolling agreement that we have with the third parties. So this year is going to be close to 2010. And for next year, we're considering to produce around 230,000. Part of those, we'll produce, most of those will be produced in our chemical plant in Chile, and the remaining part processed in China. So obviously, as Felipe commented before, the cell should be aligned with that increase.

Hi, Gabriel. I can comment on Monoholene. So as mentioned, Monoholene for year 2024 is the range I mentioned of 110,000 to 130,000 tons of subaluminum concentrate, .5% lithium oxide content. That's again, 100% joint venture, so 50% each partner. And for next year, the guidance is somewhere in a range between 160,000 to 119,000 tons, again, of subaluminum concentrate, 5.5%, the full Monoholene project.

Gabriel, this is Gerardo. Regarding your question about cost, it's important to consider that within the cost of goods sold line that we report on the financial statements, is included the payments that we make to Corfo associated with the lease agreement that we have that let us have access to the Sarabdakama. But also keep in mind that this time, for the first time, we included cells also coming from Monoholene. Approximately 900 tons came from Monoholene, and those cells are not subject to the lease payments that we make to Corfo. So that probably is affecting your estimates on cost. Regarding production costs in general, we don't have anything special to comment at this moment. And as Mark was saying, Monoholene is in commissioning, so that is, of course, having somewhat of an impact in the current cost when compared to the long-term cost.

All right, thank you. The next question is from Cesar Perez-Navoa with BTG-Pactual. Please go ahead.

Yes, good afternoon, gentlemen. I have two questions. How much did SGM International account of the 51,000 tons of lithium sold in the third quarter, and how much would this represent of the roughly 45,000, 48,000 metric tons implied for the fourth quarter of 2024? And my second question would relate to iodine. As you mentioned, demand was strong in the third quarter to the level where SGM even had to tap into your own inventory to serve industry demand. Considering the outlook that you portray in the first half of 2025 and the likelihood that competitor supply may be delayed and or be insufficient to meet overall demand, how prepared and equipped is SGM to undertake additional volumes that the street may not provide? Thank you.

Hello, Cesar. This is Mark again. As Gerardo just mentioned, during the third quarter, SGM International lithium sales represented 900 tons of lithium hydroxide. For the current quarter in progress, we expect similar volumes in the range of 1,000 to 1,200 tons of lithium hydroxide. Thanks.

Thank you,

Mark. Hello, Cesar. Pablo speaking. Yes, as we commented before, the iodine demand this year has been strong. The growth will be 7%. However, next year, we see a growth more moderated, close to 2.5%. And as we commented also before, by the second half of next year, we see that initial capacity will come from third parties. So we believe that our level of sales will be similar compared to what we expect to sell this year. So that means that we will use part of our inventories, but we don't see a big effect in the sales that we pretend to do next year.

All right. Thank you very much.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Isabel Bendek for any closing remarks.

Thank you, everyone, for joining us. This is the end of the third quarter conference call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.