Sociedad Quimica y Minera S.A.

hello everyone and welcome to the sqm first quarter 2025 earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to participate you will need to press star 1 1 on your telephone you will then hear a message advising your hand is raised to withdraw your question simply press star 1 1 again please note This event is being recorded. Now it's my pleasure to turn the call over to the Investor Relations Officer, Isabel Bentec. The floor is yours.

Thank you, operator. Good morning and thank you for joining SQM Earnings Conference Call for the first quarter of 2025. This is the conference call will be recorded and it's being webcast live. Our earnings, press release, and 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 CEO Ricardo Ramos, CFO Gerardo Llanes, Carlos Diaz, CEO of Lithium Chile Division, Pablo Altimiras, CEO of Iodine and Plant Nutrition Division, Andres Fontanas, Commercial Vice President of International Lithium Division. Felipe Smith, Commercial Vice President of Lithium Chile Division. Pablo Hernandez, Vice President of Strategy and Development of Lithium Chile Division. And Juan Pablo Velolio, Commercial Vice President of Ion and Industrial Chemicals. 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 product or service line growth, are considered forward-looking statements under the federal securities law. These statements are not historical facts and may be subject to changes due to new information, future development, 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 executive officer, Mr. Ricardo Ramos.

Thank you. Good morning, everyone, and thank you for joining us today. We're pleased to report that SKM began 2025 with solid operational and commercial performance. In the first quarter, we achieved the highest first quarter lithium sales volumes in our company's history, driven by a 20% year-on-year increase. This growth reflects sustained strong demand, particularly from electric vehicles markets in China and Europe, as well as growing adoption of energy storage systems worldwide. Lithium prices, on the other hand, were relatively stable during the first quarter of 2025, but over the past few weeks, we have seen a decline in prices that we don't think is sustainable. In the industry, it was already showing negative results. In any case, as a result of this, our average realized prices for the second quarter of 2025 should be lower than the levels seen in the first quarter. In Australia, the production of spodumene concentrate at Mount Holland is progressing well and the commissioning of the Kiwana refinery is also moving forward with the expectation to see first product in the coming month. In Chile, we continue working in our capacity expansions to reach capacity to 240,000 metric tons of lithium carbonate and 100,000 metric tons of lithium hydroxide. Moving to our iodine business, we are pleased with another strong quarter. Prices have reached a record average amidst tight supply and steady demand, primarily driven by the X-ray contrast media application. Our seawater pipeline construction is advancing rapidly and will be key to expanding production capacity. In the meantime, we're investing in operational efficiencies to respond to customer needs and optimize output. In specialty plant nutrition, sales volume grew at a healthy pace. We also saw an upward trend in prices early in this year, mainly due to a strong demand for potassium chloride and some supply disruptions. Market dynamics remain favorable across Latin America, the US, and Europe. In our potassium business, as anticipated, volumes were significantly lower compared to the same period last year. This reflects our strategy to reduce potassium production to give priority to high lithium content brines, and focus on the production of more value-added products within our SPN business lines. To summarize, SGM delivered strong commercial results in the first quarter despite a complex pricing environment. Our long-term fundamentals remain intact. We are confident in our strategy, our investment in capacity and innovation, and our commitment to sustainable high-quality growth. Thank you all.

Operator, we can now move to Q&A.

Thank you so much. And as a reminder, that is star 11 to get in the queue and wait for your name to be announced. To withdraw your question, simply press star 11 again. One moment for our first question, please. And it comes from the line of Ben Isakson with Scotiabank. Please proceed.

Thank you very much and good afternoon, everyone. Three questions. First one, just a very straightforward, simple question. You've talked about the ASP in Q2 being a little bit lower than in Q1. Do you expect that on an operating cash flow basis, you will be break-even or positive per metric ton in lithium in Q2?

Ivan, how are you? This is Gerardo Llanes. We are far from break-even cost. We were not expecting to be close to break-even and significantly above that in the second quarter this year and in the upcoming quarters. We believe we are one of the lowest cost producers, so we are far from that position.

Perfect, perfect. And then another question for you, Gerardo. You know, lithium prices are obviously lower than a lot of people expected this year. Your growth plans haven't changed. And so what the plug is now going to mean is less operating cash flow to fund that CapEx growth and a greater reliance on accessing capital markets. Can you talk about how your mind may or may not be changing in terms of capital structure of funding future projects now that lithium is coming in a little lower than expected?

well just uh before answering your question and you know you know of course we have other business lines and and and other products are doing quite well so the capacity to generate cash that the company has is quite strong on top of that we have a strong balance sheet we have a track record of having a very strong balance sheet and we plan to continue having a strong balance sheet so we are constantly assessing all the projects that we that we have on our portfolio of course understanding what is happening in the market But so far, the financial or the balance sheet has not been a constraint and we don't expect it will be a constraint in the future either.

Okay, and then just very last one, Ricardo, maybe for you. You know, we're hearing a lot of noise and politics out of Chile right now and kind of a fight about the outcome and the future of the Codelco JV. I don't understand why this is even a debate or even being brought up. I thought this is a signed agreement and you're just kind of dotting the i's and crossing the t's and then it'll be effective Jan 1. Can you talk about why is this even a debate right now in Chile and what are the different paths forward? Thank you.

Okay, as you say at the beginning, it's a lot of noise. And I think that's the perfect word to describe what's going on. A lot of noise when you start digging into the numbers. It's a great deal. It's a great deal for the country. It's a great deal for the region, for the communities, for Codelco, for the SCM. It means it's something very good. Sometimes when you are in an election year, you have a lot of noise. from everything. It's not the only noise in Chile. If you have a Chilean newspaper, we have a lot of different noises everywhere. It means an election year, you always have different discussions. But what is the real fact? The fact is that we are advancing according to our original plan with CODELCO, working very hard. We are now in the end of the process, not us, CORFO is in the end of the process of the consultation with the towns near the operations that's being carried out by CORFO. And finally, we submit all the documents required by the regulatory authorities of free competition in China. Therefore, we think that the timeframe for the transaction to be finally executed will be during the second half of this year. No changes about that. And again, you will have... It is a big transaction. Chile is a small country, and these kind of transactions are important in a country where you have not many things going on, but... But at the end, it's just noise. I don't foresee any real reason or fundamentals to have any debate about the transaction.

That makes sense. Thank you very much.

Thank you. One moment for our next question that comes from the line of Joel Jackson with BMO Capital Markets. Please proceed.

Hi, thanks. I'll ask my questions one by one as well. Team, I noticed in this slide deck in this release, that you maintain your view that lithium demand will grow 17% globally as a market this year, but you no longer show your commentary from a few months ago. You think that SQM sales themselves for lithium will grow about 15% year over year. Do you maintain that you will grow 15% sales this year? And if not, what's your new numbers?

Yes. Hello, Joel.

This is Felipe Smith. Look, considering the current market conditions, with uncertainty derived from geopolitical and trade tensions, we have not really updated our annual volume forecast for 2025. However, regarding Q2, I can comment that we expect a similar or slightly lower volume versus the first quarter.

Okay.

Second question would be, you know, there's been some commentary out in the market, you know, as prices in China have decreased a lot. You sell product to China. Obviously, you've got some contracts, I believe, with floors. There's some discussion about customers fighting back and saying spot prices are below floors. We want to pay lower prices. Can you comment on that dynamic and how you are dealing with it?

Yeah, Joel, I would like to start saying that we have more than 200 customers worldwide. Each of these customers have a different type of price mechanism.

I'm talking about specifically in China, I know. I know, I know. Just China, I know. If you could talk about China, I'd really appreciate it. I know you have lots of customers, different qualities, different products, but maybe just in China specifically would be very helpful.

Yeah, what I want to say, what I want to highlight is that with each customer, and this happens in China also, With each customer, we have different price mechanism and conditions that are all confidential. And I cannot comment, so I would ask you to please understand that I will not go into any specific about that.

Okay. And just finally, this falls upon Ben's question a little bit, but I think that SQM's philosophical demeanor has been, hey, we're going to double our production over the next seven years because, hey, global demand is growing three times. So we're just growing double our own capacity. So there you go. We're not really adding to the market. But, you know, when I look at your commentary, you know, and you talk about being, you know, the market's oversupplied, the market has probably caught you by surprise how weak it is. You know, as stewards of capital here, do you not have to think about, you know, what is the right amount of capacity to add when it seems like, There's a lot going on in this market that maybe is not easily visible or understood.

Hi, this is Carlos Diaz, CEO of Lithium Division in Chile. We're still working on expanding our capacity. We're the leader of production of lithium in the world. In Minas we have the lowest cost in the industry. And we continue with our program to expand the capacity in Chile, to produce more lithium sulfate, to later to convert in China. It's been a successful business for us. So we are really confident about the demand. And we feel confident that we will keep expanding our capacity. So we don't see an issue there.

Sorry, just one more for me. I get you're confident on demand, but it seems like no one in the industry is confident on supply. You didn't raise in some of your own commentary on this quarter. So don't you get worried that your view on supply could be wrong?

Yeah, we know there is an oversupply, but we know there is a short term. We were confident in the long term oversupply is going to disappear, and we have a good position to supply in this time. What I said before, we are the leader. We are the lowest cost producer in the industry.

Thank you very much.

Thank you. Our next question comes from Lucas Ferreira with JP Morgan.

Please proceed. All right, one moment for our next question.

Lucas, if you can queue up again. Our next question is from Corinne Blanchard with Deutsche Bank. Please proceed.

Hey, good morning, Tim. The first question would be on the Mount Holland. We saw in a recent presentation from West Farmer that they decreased their volume guidance by 9% or 10%. So I wanted to see what your view here is and how do you think volume would be for 25 and going into 26?

Yeah, thanks, Corinne. This is Andres Fontanas from SQM International Lithium. You need to be careful with what Westfarm has reported because they follow a fiscal year. Our guidance, anyway, our guidance for this calendar year for SQM share is between 150,000 to 180,000 tons, which is around 10,000 tons lower than our range provided November last year. This revision is primarily due to the impact of bashe fires and limited equipment availability. As you know, during January, we were impacted by a regional bashe fire in the surroundings of the mine. It was a significant event in the region. Tens of thousands of hectares were affected. But this kind of risk, we are the ones that are prepared. starting from the design of the plan to the implementation of procedures to having established and trained on increased management scenario. Thanks to all of that, we can say that nobody was hurt and we are extremely proud of the performance of the team and appreciative of Covalent's team especially about their reaction and also that was recognized by the authorities in Western Australia. So that is what we can comment about production for 2025.

Thank you. And then a second question. Can you please remind us the dividend policy? I think we're getting some questions about whether you're going to restart doing quarterly dividend or only annual. So just if you can comment on policy, dividend policy and the cadence of it. Thank you.

Hi, Corinne. This is Gerardo. The dividend policy that was approved by the board and presented to the shareholders established that the company will distribute 30% of its net income of 2025. The dividend policy also established, or according to the law in Chile, that a dividend has to be paid or has to be approved by shareholders in the ordinary shareholders meeting that is scheduled to happen in April next year. Companies can pay interim dividends during the year. Sometimes in the past, we, SQM, we have paid interim dividends. But at this moment, we are not considering these payments, at least for the first quarter. And that will be assessed in the future. But the dividend policy established a 30% dividend payment.

Thank you. Thank you, one moment. For our next question, and it comes from Emerson Vieira with Goldman Sachs.

Please proceed. All right, one moment for our next question.

It comes from Alejandro Demichelis with Jefferies. Please proceed.

Yes, good morning. Thank you very much for taking my questions. I'm going to choose more questions, if I may, please. The first one is, when you're talking about your growth plans and so on. Could you please confirm how you see your CAPEX requirements for, say, this year or next year? That's the first question. And then the second question is a bit of a follow-up to the previous question on pricing, is how should we think about your realized prices if lithium prices continue to come down? Should we expect them to follow that path or should we expect them to be more moderated than what we see on the screens, let's call it.

Hi, Alejandro. This is Gerardo. Well, we usually review our CAPEX plan once a year. And once that is reviewed, it's shared with the market. We should review our CAPEX plan in the upcoming months. And of course, we will share with the market the conclusions for that. Today, we don't have any updates from what was shared a few months ago. We're working on the expansion of our lithium production facilities in Chile, carbonate and hydroxide, also expanding our abilities to produce lithium sulfate. On top of that, we're working on the Mount Holland commissioning of the refinery. And on top of that, the initiatives that we're working on, on the nitrates and iodine side, where the most important one is the seawater pipeline, that should let us expand in the future our capacity to produce more iodine. So no update as of this moment. Okay, that's clear. Thank you.

Yeah. Hello, Alejandro. Regarding prices. Well, as you probably know, after remaining relatively stable during Q4 24 and Q1 2025, with some daily fluctuations up and down, lithium prices in China started to go down about one and a half months ago. And prices in Asia, outside China, have also been going down. So our sales volume is largely concentrated in China. and our realized prices remain mainly linked to price indices. Consequently, we do expect a lower average sales price in Q2 compared to Q1.

Okay. So the answer is that your prices will be linked to those indices, yeah?

Yes. Yes, indeed. That's clear.

Thank you.

Thank you. Our next question is from Julia Sagnolo with the Bank of America. Please proceed.

Hi, thank you for the call. My question is about your thoughts on routine tourism analysis investment in a lithium project in Chile. As we know, the market has an oversupply and prices are pressured. So if you could share your thoughts on how do you see or what impact do you expect for the market and supply and demand and also for SQM competitive positioning in Chile.

Hello, Julia. This is Pablo Hernandez. So during 2025, we expect the demand to reach around 1.4 million metric tons, representing over 15% year-over-year growth. China remains with a significant lead in the EV market, with more than 40% year-over-year growth and roughly 70% of the EV global sales. On the other hand, the European Union has had a very strong first quarter, with the U.S. having a slight decrease, but we continue to evaluate potential impacts on their corresponding new regulatory environment. Overall markets should continue to shift slightly towards some carbonate production, with LFP continuing their dominance in China and starting to expand abroad. During 2025, supply is expected to grow close to 15% as well, reaching between 1.5 to 1.6 million metric tons, assuming no significant production delays occur in the market as consequence of the current low price environment.

Okay, thank you. One moment for our next question. And it comes from the line of Juraj Domek with Lorraine Bial. Please proceed. Oh, your volume is very low, Mr. Domek. If you can get higher. Barely. We can barely hear you.

Let me know if it works. If not, I can send it by email.

All right. That's a little bit better.

okay okay perfect so we have two questions the first one regarding the the lithium competition you're facing in china from other producers because it seems that several several of them should be struggling at these prices but production it seems that it's continuing that's my first question and in the and my second is You mentioned in the fourth quarter that you were seeing some optimism over a positive trend in 2026. Has this view changed with the information so far in 2025?

Hey, this is Pablo Hernandez. So regarding competition in China, of course, we face significant competitors in China. They have a large portion of the market. But as many of the competitors that we see in the lithium industry overall, some of them have had not so very good results, of course, due to the lithium price environment. So I think this is overall the industry struggling with this current pricing. And regarding your question on prices for 2026, Of course, prices will be a consequence of this supply-demand balance, so we will see how this year develops and see what the impacts will be for next year.

Okay, perfect. Thank you. Thank you. And as a reminder, that is star 1-1 if you do have a question. Our next question is from Lucas Ferreira with JP Morgan. Please proceed.

Hi, everyone. I hope you hear me now. Sorry, my line dropped the previous time.

Yep, we can hear you.

My question was answered. Perfect. I don't know if my question was answered while I was out, but it's pretty much the first question to confirm your COPEX numbers for this year and the next few years, if you can, and which are the main projects in the pipeline now consuming this COPEX. And the second question regarding production cost of lithium. First, let's talk about Atacama. If the ramp up to 240 gives you sort of a fixed cost dilution effects, if there's anything in the carbon plant, the pipeline to help on the reducing cost eventually. So pretty much if you compare any server, what number to expect for cash cost in Chile, that would be great. And any initial views on the cost of production in Mount Holland, how it's been evolving, and if you have anything to share with us, that would be great.

Thank you very much.

Hi, Lucas. Your capex question was answered already. If you want, we can discuss about that later. Carlos.

Hi, Lucas. Regarding to our costs in Chile, I have to mention, well, you already know that we have been facing very low prices during this year. And mainly because of that, we have been working in several cost reduction initiatives in order to maintain our cost leadership in the market. We have been working at the same time increasing the capacity, working on quality. And all of that, we have been improving the year. So we expect to reduce our operational costs during this year and the coming year.

Perfect.

So should we expect a declining nominal cost for lithium this year and the coming years? Is that fair to assume?

Well, we expect a declining nominal cost, yes. It's already happening in the first quarter.

OK. Thank you very much. Lucas, Andres Fontanas here regarding your question on Monholland. Let me start by saying that even at current prices, our Monholland operation is cash positive. And we are executing as planned. So we continue to be in ramp-up mode in the concentrator. So as you know, every operation in ramp-up is facing higher costs. But we are confident that over long term, our project will generate satisfactory returns because we do have an attractive cost structure. And on top of that, we will have an integrated lithium hydroxide production. And as you know, we are commissioning the refinery right now, and we are very happy with the results of the commissioning, which is currently at 95%.

Okay, Lucas, Ricardo Ramos speaking here. Just want to put a summary here that We have a positive view about the long-term in the lithium industry. It means today price environment is not sustainable. It means there's no way the industry can survive these prices. SQM is probably the only one. I'm not sure it is the only, but one of the only that can have reasonable profits at today pricing. It means that price should improve in the future, probably in the near future. What we can say is that there's no one in the world best prepared We are the best one in order to take advantage of the market. We have been very successful increasing capacity. Today we have the capacity, the quality, the alternative, the market. Australia means everything is in our favor to take advantage of the recovery of the prices. That is coming. It means we cannot know, we don't know when, but market is very strong. It means demand is stronger than ever. The uses of the electric vehicles industry is It's better than expected in terms of quality of the cars, performance, whatever. That's why we think that even though there are some issues in the world, in the trading activities between different countries in the medium term, this demand will continue to increase, will continue to increase, and we are prepared to supply the lithium to the market. It means that we have a positive view. My view is, I don't have the crystal ball anyway, but my view is positive for next year. They think that prices will go back to a reasonable level And I think the demand will continue to grow. We are going to be the number one prepared. And again, as Carlos Diaz said before, we had all the time. It means our cost is by far the lowest cost, but it's even better today than what we used to be two years ago. It means the work in our facilities being great. in terms that we have been able to have. And you see my numbers, our numbers in the first quarter, and our numbers speak by themselves in terms that we generate significant profits in the lithium industry, even though prices were very low. That's something that we are very proud to continue in the near future. And in Australia, as was commented, now we think that we have one of the best production of spodumene, and probably we will start producing now hydroxide that we are being integrated very good news and probably we're very a very strong competitor in the industry means again very i have a positive outlook in the in the medium maybe long term but of course we are facing a situation very complicated second quarter in terms of the pricing everyone is facing the situation not only a scam everyone is selling in china china is the big is the most important market in the world there's no one big producer of lithium without selling their products in China and the end facing what is the market price. And we think that we are the best one to do it.

Thank you very much guys for the explanations.

Thank you so much. Our next question is from Constanza Gonzalez with Quest Capital. Please proceed.

Constanza, if you can check your mute button.

Hi, thank you for taking my question. I have a question regarding that is not so clear for me. I appreciate if you can clarify the information of that you are considering right now by in the case of project. Or could you give us more details about the levels that you are seeing this quarter?

Constanza Andres here.

As I said before, we are still in ramp-up mode, and in that period, of course, you are facing higher costs. But as mentioned, as soon as we reach three states, the project is cash flow positive, even at these prices. So we are confident and very satisfied with the evolution of that project.

Okay, just for clarifying, are you considering the depreciation in the Holland project too? Because if you look for the information in comparison with first quarter of 2024, the depreciation rise a lot. So that's why I was asking if you are considering that. Thanks.

Hi, Contanza. This is Gerardo. Andres was referring to cash cost in his statement.

All right. And this will conclude our question and answer session for today and our program as well. Thank you all for participating. And you may now