Sociedad Quimica y Minera S.A.

Good day and thank you for standing by. Welcome to the SQM fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Isabel Bendek. investor relations officer.

Thank you. Good morning. Thank you for joining SQM earnings conference call for the fourth quarter and full year 2024. This conference call will be recorded and is being webcast live. Our earnings press release and a presentation with a summary of the results have been uploaded at our website where you can also find a link to the webcast. Today's speakers include Gerardo Llanes, Chief Financial Officer, Carlos Diaz, CEO, Lithium Chile Division, Pablo Altimiras, CEO of Iodine and Plant Nutrition Division, Mark Fons, CEO of International Lithium Division. Also from our commercial team, we are joined by Felipe Smith, Commercial Vice President of Lithium, Juan Pablo Velolio, Commercial Vice President of Iodine and Industrial Chemicals, Also additional for lithium market related questions, Pablo Hernandez, VP of Strategy and Development, will be also available. Before we begin, I would like to remind you that statements made in this conference call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses, and other financial items, along with expected cost synergies and products or service line growth, are considered forward-looking statements under federal securities laws. These statements are not historical facts and may be subject to changes due to new information, future developments, or other factors. We assume no obligation to update these statements except as required by law. For a complete forward-looking statement, please refer to our earnings press release and presentation. I am now leaving you with our Chief Financial Officer, Mr. Gerardo Illanes.

Thank you, Isabel. Good morning, and thank you all for joining today's call. Last night, we published our fourth quarter financial results. We achieved revenues slightly exceeding 4.5 billion U.S. dollars for the full year of 2024, along with a gross profit of approximately 1.3 billion U.S. dollars. Our net income for 2024 was impacted by a one-time charge of approximately $1.1 billion recorded early in the year. This charge pertains to an ongoing dispute regarding the tax treatment of mining activities at Esquien Salar. We estimate that the lithium market grew around 25% in 2024 compared to 2023, primarily driven by the strong growth of electric vehicles in China and other markets, as well as the rapid growth in the demand for lithium in energy storage systems. With this surge in demand, combined with our successful capacity expansion efforts in Chile, we achieved record sales volumes in 2024, reaching nearly 205,000 metric tons of lithium, which includes almost 4,000 metric tons of lithium carbonate equivalent, coming from Moon Holland, making a milestone in our successful partnership with West Farmers. At the same time, in the fourth quarter, we achieved a record high sales volumes, with sales surpassing 58,000 metric tons of lithium carbonate equivalent. Although we observed a decline in prices quarter over quarter in 2024, this downward trend softened during the fourth quarter, and we expect relatively stable prices during 2025. Additionally, we estimate that demand could grow approximately 17% this year and expect our sales volumes to grow at a similar rate. Moving to Iodine, we had an exceptional year in 2024, achieving record volumes and benefiting from strong price growth, largely driven by the recovery in demand, particularly in the X-ray contrast media application. For 2025, we expect continued demand growth, although at a slower pace. We expect our sales volumes of ION in 2025 to reach similar or slightly lower levels than the ones reported in 2024. We're working on bringing more capacity to the market, working on some efficiency initiatives, along with adding Maria Elena as a production site on top of Nueva Victoria and Pampa Blanca. In the fertilizer segment, we believe the market has fully recovered from the challenges of the past few years, with prices stabilizing at levels seen in the second half of 2024. Looking beyond 2025, we remain committed to investing in expansion of our core business. In 2024, we invest over 1.6 billion US dollars and will continue to invest in increasing capacity, particularly in lithium, where in 2025, we plan to allocate approximately $750 million for capacity expansion, both in Chile and abroad. Additionally, we intend to invest close to $350 million this year in the Caliche operation to keep on increasing our production capacity, aiming to add approximately 4,000 metric tons of ionized capacity in the coming years. All of these investments are supported by the company's strong financial position, which provide us with the flexibility to seize new opportunities as they arise. Operator, we can move now to Q&A session.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Ben Isaacson with Scotiabank. You may proceed.

Good morning and thank you for taking my questions. I have three questions. The first question is on potash. So your guidance is that production will be down 50% this year. Is this a combination of growth in SPN and more efficient production at the solar? And is there a possibility that you could be a net buyer of potash in the future? Where is the potash going?

Thanks. Hi Ben, this is Carlos Diaz. Yeah, you're right, we have been producing less potash in the last year because we have been focusing in the leading production. We have been extracting less brine and the production of potash is 100% correlated with the brine extraction. And what I said before, we have been focused more on lithium and productivity on those and so on. And obviously, that affects mainly the sale of potash because primarily we produce for the conversion to potassium nitrate and later for the sales in the market.

Great. Thank you. Gerardo, a question for you. When you look at your capital requirements over the next two or three years, it's looking like, given where lithium prices are right now, funding those capital requirements out of operating cash flow will need to be, there's going to be a gap that will need to be filled by raising capital. Can you talk about what those parameters are of raising capital, anything that you're comfortable with in terms of type of capital, timing, size? What should we be thinking about?

Ivan, thank you for your question. Yeah, over the past few years, we have been investing a lot to increase capacity in the different business lines, but with the main focus on lithium. But despite that, you can see that we have a strong balance sheet. We have had a strong balance sheet for a long time, and our plan is to keep on having this strong balance sheet that let us react and invest when the opportunities arise. Now we're focusing on keep on investing, expanding our capacity lithium in Chile, also investing in the production capacity in Australia. along with the Galicia opportunities that we have here mainly related to IOM. As you see, we have a balance sheet that can support a capex of this level. And in the past, when we have seen that we are in a situation where we will need to get more financing to finance these projects, We have taken several measures, and one of those is assessing or reviewing the dividend policy. And the most relevant one, which was the one that we did in 2021, was to raise capital. We're not planning on doing that at this moment, but we're closely monitoring that to make sure that we keep on having a strong balance sheet, which is quite relevant for us.

Great, thank you. And then my last question is just on the iodine business. You know, when we look at your share price, it's very clear that the market is focusing on low lithium prices and not really on what I think is a crown jewel, which is the iodine business. Is there a possibility to repackage that and spin that out as a separate company? Or just given the way the Caliche ore works, and the way your infrastructure works, it's just not possible and it's not something that you're thinking about right now. What are the pros and cons of that? Thank you.

Hi, Ben. You're right. ION is quite a relevant business for us, not just because of the current market conditions, but also because of our expertise and our capacity or our ability to deliver on bringing new projects and new capacity. It's a key component of the SQM portfolio. And at this moment, we are not planning on doing anything in the lines of what you're saying. We are allocating resources to expand the IOM capacity, trying to take advantage of the strong position we're in. In the same way, we're doing it in lithium.

Thank you very much. Appreciate it.

Thank you. Our next question goes from Joel Jackson with BMO Capital Markets. You may proceed.

Good morning. Thanks for taking my questions. I'll go one by one. Ricardo, I think in the press release, your quote is saying you're optimistic on lithium because of demand growth, though you do expect prices to be stable for the year. Can you elaborate on that? Yes, demand growth is strong, but so has been supply growth. What makes you optimistic about lithium here? What gets the market to improve?

Hey, Joel, this is Gerardo. Just to clarify something, Ricardo, unfortunately, couldn't make it today, but Pablo Hernandez is going to help you with your question. Thank you.

Hey, Joel, this is Pablo. So on the lithium market for 2024, we saw the demand reach over 1.2 million metric tons. That's around 25% year-to-year increase from 2023. So that EV sales accounted for roughly 70% of that total demand, full of battery batteries. energy storage systems with over 15%. And globally EV sales reach almost 18 million units, marking roughly a 26% year-over-year growth. For 2025, demand is expected to reach more than 1.4 million metric tons. That's close to a 20% year-over-year growth, with EVs remaining as a primary driver. And China remains the dominant market in the EV, while of course the U.S. and European markets face policy uncertainties that could potentially impact their demand. Also, the market should continue to shift slightly towards LCE production, as LSP capital demand continues to gain more relevance, particularly in China. And in relation to supply, in 2024, it reached over 1.3 million metric tons, representing an increase of more than 35% when compared to 2023. But in 2025, supply is likely to continue to grow close to 10%, but of course, subject to supporting price levels. reaching to close to 1.5 million metric tons. New projects in Africa, Argentina, China, expansions in Australia, and of course, Chile as well from SQM will start production this year and refining in China remains with some overcapacity. And this oversupply in 2025 is expected to be lower than last year, which may have an impact on prices with a potential upside in 2026, as it was mentioned.

Okay, so you have demand growing 15 or 17% this year, supply growing 10%. That's the reason for the optimistic, if I summarize it correct? Yes, correct. Okay, and then on your own production... It looks like you're maybe underproducing what you could produce, like you're holding back a little bit. I'm not sure, but maybe I'd like some color, some elaboration on that. If demand was better than thought, do you have more capability this year that you can push and get more production out than what you're guiding to?

Hi, this is Carlos Diaz. Our strategy in the last year to produce as much as we can according to our strategy that we defined time ago. If you see, we have been increasing the production in the last five or six years. Last year we reached 200,000 metric tons and this year we expect to reach 230. That is a combination of what we produce. Everything is coming from the Salada Gamma. I'm just talking about the Chilean production. uh and this is what i say with respect to produce 230 and we have to differentiate between capacity and actual production we have been expanding our capacity and we're still working to reach 240 as a refinery in chile at the same time where we have been developing our our capacity in china in the sheen and and doing some refinery with some dollars so We put everything together. The production this year is going to be 2030. Next year, we expect to grow it again. And what I say, we have been increasing capacity. And this year, it's going to be the ramp up of the new expansion. I don't know if this answers your question.

Yeah. My final question is just on the Codelco JV. So, of course, we know that it's all retroactive January 1st. So, sir, for all the accounting you're going to have to do when this finally closes. But more seriously, what is going on behind the scenes here? Like, what are the next milestones, catalysts? What do we need to see for all the conditions for Tianxi to be satisfied, for this JV to close, and for SGM to move on to the next phase of your history here or future?

Hey, Joel. Well, as you know, when we signed the association agreement with Coelco, a set of condition precedents were established, one of which was must be met for a joint venture to commence operations since then we have been working together with codeco corfo and of course us on the necessary task to ensure these conditions are fulfilled today to date we have not encountered any significant obstacle in this process And we're currently expecting that this condition presence will be met in the second half of this year. As you can imagine, there is a lot of things that need to be done. And that's why it's a process that takes a relatively long time.

Thank you very much.

Thank you. Our next question comes from Rafael Barcelos with Verdesco VBI. You may proceed.

Good morning, and thanks for taking my questions. Just one question on your CapEx estimate. So you provided a guidance for the 2025 CapEx for each division, right? But could you please be more specific on each project you are considering here and how much could be considered as a maintenance CapEx? And other than that, like a second question here on the CapEx, It would be very helpful if you could discuss your CAPEX requirements for the coming years. Thank you.

Hey, Rafael, this is Gerardo. Yes, for 2025, we announced total CAPEX in the neighborhood of $1.1 billion, which includes approximately $550 million of CAPEX associated with our lithium operations in Chile, $200 million associated with lithium operations abroad, and approximately $350 million associated with the Galicia operations in Chile. For the next three years, including 2025, so 2025, 2026, and 2027, we are estimating that the total capital will be somewhere in the neighborhood of $3.1 to $3.8 billion. mainly or, yeah, mainly evenly distributed throughout these years, where approximately $1.5 to $1.8 billion will be allocated to lithium expansions in Chile, approximately $700 to $1 billion associated with the international lithium initiatives, and from $900 to $1 billion associated with Caliche operations. In order for you to understand a little bit more what's included in each of these projects, we'll go one by one on each of these issues. So, Carlos, if you can start.

Yeah, for this year, we expect to produce, sorry, to invest $550 million. And the reminder that I already mentioned, Gerardo is expected for the next year, 26, 27, according to our plan to keep expanding the lithium carbonate and lithium dioxide capacity in Chile. For example, now we are focusing on lithium dioxide in Chile, and with our idea to reach 100,000 metric tons of production, according to our long-term contract. that were already signed with different customers in order to supply that kind of product in the coming years. And the same for lithium carbonate to keep it increasing the capacity according to the demand. So you have seen how we have been increasing the capacity in the last year and we want to keep doing that in the following year. So the cap is according to that, according to, for example, to increase quality, productivity and other issues. That is our main goals. Pablo, you will follow?

Okay, thanks, Carlos. Hello, Rafael. Pablo Timiras speaking. Yes, in the case of the iodine and nitrate business, also we are with an important CapEx program. For this year, we expect to expend $350 million. And if you consider the 2025, 6, and 7, the total amount is close to $900 million. The main projects are to continue growing in iodine, especially, also in nitrate, but especially in iodine, where maybe what is important project is all the expansions that we are doing in Nueva Victoria, the project that we call Tentenelaire, that includes the seawater pipeline, which are high capacity of 900 liters per second, which allow us to continue expanding our operations. But together with that, you need to invest in new solar pumps, new iodide plants capacity, iodine. So all our projects that are today, we are moving forward. And at the same time, as we command in the press release, also we expect to open iodine operation in Marialena that will support what we are doing in Victoria and Pampa Blanca. And if everything is going well, we expect to start with this project. Well, we already started, but we expect with the mining and leaching activities by the third quarter of this year.

Mark. Okay, thanks. And in third place, Rafael, this is Mark Fons speaking on the international lithium side. As Gerardo commented, we are aiming for almost $200 million investment this year. which is pretty straightforward. Almost half of it is related to finishing the Mount Holland Queen Anna Refinery construction. And then the other half would be split among the developing Andover project and our own exploration program we have in Australia and now in Namibia. In the following years, 26 and 27, there's of course a range of uncertainty between 500 and 800 million that will depend particularly on final investment decisions to be made. First, within this year for the expansion of Mount Holden with our partner, West Farmers, and then following a feasibility study to be delivered by the end of next year on the decision of investment in Andover together with Hancock Prospecting.

Rafael Gerardo, again, regarding your question about maintenance, our maintenance capex across all divisions is somewhere around 250 to 280 million dollars per year.

Okay, perfect. Thank you.

Thank you. Our next question comes from Corinne Blanchard with Deutsche Bank. You may proceed.

Hey, good morning. Thank you for taking my question. The first question focuses on very high lithium volume. I think this is your highest quarter, like a record quarter. Can you comment on why do you think this is happening? I think there has been some talks around in the industry of China maybe stockpiling and trying to buy as much volume at a low price. So I would be curious to hear your opinion on this.

Hello, Corinne. This is Felipe Smith. How are you? Good. Good to hear. So, regarding the volumes, first, I just want to explain that China concentrates close to 80% of our sales in 2024 in line with the global demand. The Chinese market experienced a strong growth in 2024, more than 35% compared to the previous year, gaining share against U.S. and Europe, who have been growing lower than our expectations. We are not building inventories in China. There is an actual demand there, and we are working with reasonable inventories. As a matter of fact, anyway, we have warehouses over there. We are well prepared to supply the Chinese market. We have a large commercial office in Shanghai. And as you well know, we are also refining carbonate and hydroxide at our plant in Beijing and with third parties. I don't know if this is answering your question.

No, I'm not talking about shoe stock, Pauline. I'm talking more about Chinese customers trying to buy as much volume maybe as they can. I'm just trying to try to understand why you're seeing 58 kilotons in 4Q, which is normally not what we're seeing. And we have heard as well from others in the industry that customers want volume as soon as possible. So I was just curious. to hear if you have an idea or a theory about maybe what's going on there.

We do not see any price speculation, Corinne, on an extraordinary building of inventories in the supply chain, just the reasonable inventories that you need to sustain this demand growth.

Okay. Second question would be on Africa and Australia. I think we saw some press release last night about you got the latest, the last regulation approval for the project in Africa. Can you just try to tell us what could be a potential mine plan or like what the plan for that asset in Africa? And then if you can give a very quick update on the month for lending in Australia as well. Thank you.

Thank you, Karim. This is Mark Fones. Yes, the project in Africa, which actually is in Namibia, is part of our early exploration investment portfolio. So what we have and the value we add is we have an extremely knowledgeable team of geologists and exploration team in Australia. And we leverage on that expertise, and we have built a very interesting portfolio of, as I mentioned, early exploration investments. We have 20 different projects in Australia, as well as we now have this new project in Namibia, and we expect to soon have one in Sweden as well, subject to conditions present. But these are very early-stage exploration projects. We invest in them as a portfolio. We advance in explorations. We advance in the ones that actually overcome certain barriers and certain key internal parameters And it's still too early to say what is going to be the mining plan on those projects. This is probably three years of exploration projects in some of them, two years in others. And that's how we continue building their portfolio. To your second question regarding Mount Holland. Well, Mount Holland had a very good 2024 run. During the year, we continued ramping up the production of the concentrator between the first quarter of the year and the last quarter of the year. we actually have unitary production costs. And we ended up in the last quarter, almost in 80% capacity production. So it was a very good year for Manoharan concentrator. And on the refinery side, we ended up the year above 95% construction, above 50% of commissioning, which actually today currently commissioning stands at two thirds of the refinery in Quinaana. We're pretty happy. Things continue on schedule, and we expect fresh product for mid-this year.

All right. Thank you.

Thank you. Our next question comes from Andres Cassano-Molor with Berenberg. You may proceed.

Hello. Thank you for the detail on COPEX. I have a follow-up on the 2024 expenditure of $1.6 billion. Can you break that for me? I would like to know what is M&A, what was organic, and what was maintenance.

Hi, Andres. Approximately $350 million were related to the acquisition of Azure that was announced at the beginning of last year. And the rest was mainly associated with the expansions of lithium in Chile and more coal in Australia.

Thank you. Can you give some indication about the volume distribution expected for 2025, at least in the first and second quarters versus the second half? What is the profile of the sales that you expect, even through the year or accelerated towards the second end, higher in the warm summers right now?

Andres, I assume you are asking about the lithium volumes. Felipe, can you connect?

Yes. Hello, Andres. First of all, regarding Q1 2025, we are estimating that our sales volume could reach at least 50,000 tons LCE, which is 15% higher than Q1 2024. And to this, you also have to add some cells of lithium from Australia. And we expect that over the coming quarters, let's say Q2 to Q4 of 2025, those volumes will be increasing, reaching the highest number in Q4. But this is our expectation today.

That is great. Thank you very much.

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Gerard Domic with Lorraine Vial. You may proceed.

Hello, good evening. Thanks for the presentation. I have two questions. The first one, we saw some articles regarding potential impacts on the construction of the Kimal Ajire transmission line. Could you comment on any potential impacts on either production or projects, or if any, And my second question is regarding iodine costs, iodine cash costs. Apparently, we saw some increases in the fourth portion. Any events that could explain this increase and what should we expect for 2025?

Thank you. Hello, Uday. Pablo Timiras speaking. Okay, going to the first question. first of all to say that because of the nature you know that we have a lot of mining properties so it's normal for us that sometimes you have together mining projects with electrical projects or other things so for us it's normal so regarding to this specific project we are reviewing how could potentially affect our mining properties we are under analysis and then we will decide how to proceed that's the first thing Regarding to the second question from ION cost, yes, I mean, if you see the average cost of the second semester of last year compared to the first semester, it's true that the cost is higher, especially in Q4 of last year. However, it's important to say that this cost is not representative at all of our current cost. There is an effect because of one-time expenditures that was allocated in Q4 because of specific projects that we are doing actually to improve our recoveries, increase production, and different things, but it's not representative. However, having said that, it's important to say that We should expect for this year a similar cost to the average cost of the second semester. So that means that the cost is being increased a little bit because we are a maximum production. Today, we are driven to put all the product that we can put on the market because of the market reality. So the marginal cost has been higher than before.

Okay, perfect. Thank you.

Thank you. I would now like to turn the call back over to Isabel Bendek for any closing remarks.

Thank you all for joining and have a nice day.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.