Sigma Lithium Corporation

Good morning, everyone. My name is Rob, and I will be your operator today. Welcome to the Sigma Lithium third quarter 2024 earnings conference call. Today's call is being recorded and is broadcast live on Sigma's website. On the call today is company CEO Anna Cabral, CFO Rogerio Marchini, company executive vice president Matthew Dio, and vice president investor relations Irina Axanova. We will now turn the call over to the Sigma team.

thank you rob good morning everyone and thank you for joining us on our third quarter 2024 earnings conference call on the call with me today our company ceo and co-chairperson anna cabral cfo and cfo rogerio marquini earlier this morning we published our 3q press release and posted our financial results which are available through both sec and cedar before we begin i'd like to cover two items first During the presentation, you will hear certain forward-looking statements concerning our plans and expectations. We note that actual events or results could differ materially from changes in market conditions in our operations. And additionally, earnings referenced in this presentation may exclude certain non-core and non-recurring items. Reconciliations to the most comparable IRFRS financial measures and other associated disclosures, including descriptions of adjustments, can be found in the back of the release. With that, I will pass the call over to Anna. Anna?

Hi, good morning, everyone. Well, this quarter, we achieved our production in low industry cost targets. We generated robust free cash flow and we demonstrated our operational resilience to lithium cycles. We also benefited from a shift in our commercial strategy, which helped us navigate industry seasonality and price volatility, enabling us to secure final higher average realized prices compared to the price bulletin benchmarks. Over the last year, you followed us on this journey and we are very proud to have transformed Sigma from an emerging producer into this industry leader, demonstrating the operation and financial resilience of a mature producer, showing dependability and consistency. Meanwhile, we have managed to deliver on all of our climate goals. And we reached net zero one year in advance of our target, 27 years ahead of the industry with our quintuple zero green lithium, which became a brand. Well, we're very confident that over the lithium cycles, our capabilities to deliver on the execution of our strategy will ensure long-term value for Sigma and all of its stakeholders. So without further ado, I will initiate this presentation going through the highlights of our quarter. Well, on the operational aspect of our operations, we continue to deliver operational excellence. We further increase the cadence of quasi-monthly volumes to 22,000 tons sold per month. We also managed to surpass third quarter production targets set initially at 60,000 tons. We've done better than our targets. We successfully executed a shift in commercial strategy that helped us weather seasonality, meaning we achieved higher realized prices versus the industry and increased substantially our resilience to lithium cycles. More importantly, we keep on working on our green tech plant technology, perfecting it. We successfully concluded the plant one efficiency revamp we talked about in our investor day, which has the potential to increase production by 10 to 15%, just like we said. More importantly, we continue to advance the construction of the second plant And we're going to show you quite a lot of pictures here of our construction site. I think more importantly to all of us partner employees, we created this culture of ownership and operational excellence, which continue to deliver in the zero accidents without lost time achievement. We've gone now 40, 43 days without losses. accidents without lost time to work and zero fatalities, staying at the very top of the ICMM rankings. I'll pass it on now to Rogério, our CFO.

Good morning everyone. So, SIGMA delivered robust financial performance. The principal financial highlights that we have in quick was we signed the BNDES Development Law and Agreement, fully funded construction of phase two. We maintain low CIF cash costs at target 513 per pound, lowest quartile in industry. 34.5 million in generated operational cash flow, 65 million cash in the bank. continue to lower interest rate of export credit rate lines something around nine percent so we maintain focus on execution delivery operational performance on targets production volumes 6237 dmt sales volume 57 400 83 DMT. Cash cost, FOB, 449 per ton. SIF in China, 413 per ton. Sales revenue, 44.2 million. Operational cash flow, 34.5 million. Cash in the bank, 65.7 million. Provisional price adjustment, price adjustments is final account settlement of sale open invoice. And we have a cash gross margin of 38%.

I'll talk a bit about the superior industrial performance of our green tech industrial plan. So on production, we delivered on very, very ambitious targets. The strong performance of the plant basically achieved results that were never before achieved in DMS. Basically, it's a result of our unique green tech technology. So we delivered production above targets of 60,237 dry metric tons. We achieved plant DMS recoveries of 70%, which is a record for this type of technology in lithium. And we achieved global recoveries of 55%, demonstrating what we're going to say next. By concluding the optimization project in record time, we are going to boost global recoveries to near the levels of DMS recoveries by increasing this plant efficiency in this quarter and in all the quarters thereafter. More importantly, this is going to allow us these changes are going to allow us to reprocess our tailings, basically upcycling the lithium oxide contained in the tailings into more lithium concentrate. Now, in a clear demonstration of operational readiness, our team managed to execute the shutdown in only four days and implemented and installed all the equipment necessary for this optimization project. So the team is very ready to build Plan 2. Now, I want to highlight here something that sometimes we miss. We use a different technology than the rest of the industry. We use dense media separation versus flotation for many reasons. Environmentally, our technology together with the dry stacking doesn't create a tailings dam. Also importantly for our other stakeholders, for our shareholders, This technology is what allow us, in great part, to achieve some of the lowest costs in the industry as a result of the simplicity of the processing of lithium that takes place in the DMS. So demonstrating that, when we show total production costs at Plantgate at $395 a ton, only $113 a ton come from the processing DMS costs. In fact, I want to use this point here to highlight another cost saving that will take place in the next quarter. We installed mobile crushers as part of this optimization project, which are temporary costs. So $25 a ton are going to drop from this cost in the next quarter. So in the next slide is a demonstration of that operational performance. So we were able then to resume our trajectory of increasing production levels. So the increased production performance has also translated into higher sales volumes for the company, as you can see here over the last five quarters. And when you look at the last four quarters, you have then our annualized sales volumes. We are expecting to be able to continue on this trend and sell 60,000 tons in the fourth quarter of this year. As we said, this strong culture of safety and processes is what drives this operational excellence. I mean, our team works motivated knowing that we have the processes and the safety culture to allow them to return to their families safely every day. So again, we continued on our trend of zero fatalities, 443 days without lost time to accidents or injuries, achieving a TRFIR, which is the index through which we calculate this, of 1.24, which is the second lowest in all of the ICMM rankings among all of the global metals and mining companies, some of them much bigger than ours.

So talking about BNDS, as I mentioned, we signed BNDS law on transactions. This is a very fantastic target that we got. The total amount is 487 million, that finds 99% of our capex, the expansion on phase two. The first loan disbursement is pending a bank guarantee. And this line will reimburse CapEx expenses since one quarter of 2024. The terms is pretty good. The maturity is 16 years. The grace period is 18 months. And PIX rate, it's a really, really good rate, 2.5 in dollar. And there is no requirement of collateral in assets. So with Bindesk, we are creating a long-term partnership for developing new funds to finance our expansions. like teun, upcycling, phase III, lithium intermediates, and other expressions that we are planning.

So with that, we got confidence to continue to plow through and advance through our Plan II construction. So you can see the areas here, and this is kind of a different picture than what we used to show. We used to show in yellow the plant, and then in green, the infrastructure. So now we kind of switched over the area so that you can see the whole construction area to the left of the plant going all the way in, in something around two to three square kilometers here within our already licensed environmental areas. So we're executing earthworks and engineering according to plan exactly as planned. Well, moving on to cost targets, Again, we delivered on all of our cost targets, as always. This is because we have a very strict cost discipline here at Sigma. So we just maintained what we've always done. And therefore, we remain as one of the lowest cash costs in the whole industry. So this actually, this distance and cadence and consistency in disciplining, maintaining low cost is what actually demonstrates how resilient our company is to all the lithium cycles. We're always going to be in the black. Now, more importantly, that execution discipline of keeping a little down costs and maintaining low cost levels generated positive cash flow in the third quarter. So again, we are weathering the floor, which happened on the third quarter, of the lithium cycles, which is then another data point. I mean, this positive cashflow generation is another data point about the resilience of our business. So as you can see in these four charts, the operational cashflow generated, which was 34.5 million US dollars, all the figures here are in US dollars, enabled us to continue on delivering these earthworks and construction for Phase 2 CAPEX investments, which amounted to $5 million in the quarter. But more importantly, it allowed us to repay some of the existing credit debit lines, because given the BNDES was signed and final, we have now the confidence of not having to maintain such a large cash balance, given that we're not planning to fund this construction with trade credit lines anymore, even though those trade credit lines are kind of cheap. So we retired $40 million in export credit debit, again, in a clear sign of cash flow generation and financial resilience. All the while, though, we still managed to maintain a very healthy cash balance during the year. So just for comparison purposes, we show the cash balance in December. and then the cash balance in September at the end of the third quarter. Now this page basically is a very important page because in the quarter we managed to further adapt our commercial strategy. So we pivoted from selling to the trader as a principal to selling to the trader as a distributor. So again, Another data point that enabled us to weather the lithium market seasonality significantly strengthening our commercial position. And this is quantifiable. How so? First, graphically. Intuitively, in a chart at the bottom, the light gray line shows the benchmark fast market spodumene index, right? This is a bulletin price index since the beginning of the year. In the thin bars here, you can see where we priced our boats with each shipment. So you can see that by June, as we switched and adapted our commercial strategy, we started to manage to price our boats above the Bulletin Fest market prices. And we consistently continue to achieve that throughout August. Then we were able to push back the final resale of the product by the traders that distributed all the way to the seasonality in October, concentrating these purchases seasonably, and again, managing to price our boats above the benchmark price. Now, in the chart above, you can see that in percentages and how these contrasts to what happened, for example, during the winter seasonality and then the pickup in prices in the spring. The change is quantifiable. In the winter seasonality, we were 25% below the benchmark index because we didn't pick up that seasonality as we were basically selling to the trader and the trader was the principal. He had full discretion on the resale. Now, in the summer seasonality, the situation changed completely because seasonality is typically that sort of fluctuation, 25-ish, 30%, right? 20 to 25%. We inverted it. So we picked up all the above benchmark pricing seasonality. We reached 119% of the benchmark price seasonality, meaning capturing more value for our business. Now this change is quantifiable also in the mark-to-market closing of some of these previous trades that we did in this quarter. So as a result of these changes in commercial strategy, we also changed the way our commercial relationship with traders is conducted. So essentially, we concluded this final accounting. It's a non-cash settlement of sales invoices from the previous quarters, just turning a page on a way to do business that we no longer engage in, given the robustness of our position today. Now, this is important to understand our financial statements because when you look at the sales revenues booked, they have a provisional price adjustment, which is essentially the closeout of all of these trades. For this quarter, we just have a residual value of 7.7 million US dollars from the trades shipped in the fourth quarter of last year and that arrived this year. And then we have $15.6 million from the trades shipped and arrived this year. But now when you look at the year today, that's when you see how most of the overall effects of all of these provisional prices that we've been booking and marking our sales book to market throughout the year, are concentrated in the boats, the ships, the boats that were shipped in the fourth quarter of last year. So it's a clear heavy function of how the fluctuations actually and how the significant decrease in lithium prices in the fourth quarter actually caused this mark to market of our open sales books and therefore led to about 20 million of the overall annual provisional price adjustment over 29 million of the total. So we can clearly see a concentration in the full quarter of 2023. But that basically concludes the way of doing business that way, as you can see in how we are managing our commercial strategy in the present and going forward. Another data point on that is that this commercial assertiveness resulted in higher financial prices achieved in the third quarter. So you can clearly see it, and you can basically calculate this back to our financials, that in the third quarter, because we managed to concentrate our resales through the traders and distributed in post the winter seasonality, in the fall restocking cycles, we managed to achieve higher realized prices, actually. If you think about it just this week, we were managing to get pricing indications for $900 for the October ship. Had we priced that boat when we shipped it, it would have been $750, which was the bulletin price. So it's, again, data points that indicate that we have made the perfect pivot in our commercial strategy. by increasing the control of how our resales occur. But again, this was just enabled by the cadence, the performance of our business, which drove us to obtain larger trade finance credit lines, and therefore managed to have this sort of commercial control over our trading partners. This slide is a bit of a more detailed slide, but it's important because we talked about the cash generation. So we want to dissect a bit how the cash position floated from the beginning of the quarter to the end of the quarter. So the first element here is that the sales revenue for the quarter before the non-provisional price adjustments basically brought a positive inflow of $45 million U.S. dollars. Then we had a working capital increase here of $56 million. But then within that, there was a portion from the collection of account receivables from the previous quarter. So netting it out, we ended up with a 32 positive million dollars, right? An interesting item that generated quite a lot of questions in the previous quarter, but we're demonstrating here now that it was basically mark to market of currency. We just had a small foreign exchange fluctuation. And again, it results from the Brazilian real volatility, given that our costs are in Brazilian reais, our revenues are in dollars. And so the small volatility. In fact, here, the currency is our ally because we have dollar revenues and we have emerging market currency denominated costs, right? And I think lastly, you can see that this robust operational cash flow generated allowed us to basically retire drawn but non-used trade credit finance debt. So we just repaid 40 million in trade credit finance debt. And again, tying back to what Rogério was saying, This is because now we have the confidence that the NDS is signed, binding, done. So essentially, we won't need to keep this large cash balance from drawn trade lines in order to fund our construction in the next 12 months. Again, this is another slide just to reinforce our comfortable liquidity position. So you can see our cash position here. It's 65.6 million US dollars. Again, all numbers in this presentation are US dollars. And then when you look at the short-term debt, it offsets this 59.2 million US dollars, which are current short-term trade lines, which are still in our balance sheet. And we're actually gradually lowering that number as we advance towards the first disbursement with the NDS. There's $10.8 million here, which refers to the short portion of the long-term debt with Synergy Capital, one of our shareholders, which you can see here in the long-term debt portion of the slide. More importantly, on this slide, it demonstrates that we have robust access to liquidity at improved interest rates, which result from this consistent operational performance. So essentially, export trade credit lines are delivered and assessed and evaluated by banks based on performance risk. Performance risk is the ability of the company to produce, sell, deliver the product, exporting every single month. Now, As you've seen, our production and sales cadence, now over five quarters, over a year, basically more than a year, has basically allowed us to have this robust access to export credit line facilities at much improved interest rates because of this consistent operational performance. So at the bottom here, we actually break down our interest rate costs by type of debt facility. So you can see that our export credit lines with Banco do Brasil, Shanghai, one of our biggest export trade partners, actually the biggest export trade partner is 5.5% in US dollars fixed. And that's incredibly attractive. The overall trade finance in the domestic Brazilian market, it's sitting at 9%, which again is a substantial decrease from the 15% where it used to be just at the beginning of this year, when we hadn't yet established this one-year-long operational performance cadence. Just to recap, the BNDES debt sits at a very comfortable 2.5% fixed in dollars. And then our current long-term debt with the Synergy Capital, our very esteemed shareholder, sits at 12.3%. percent for that current long-term debt, which again is an extremely benign facility. And we're very grateful for Synergy Capital for having delivered us this vote of confidence in December 2022 in order to commission our plant lot. And again, speaking of that, where are we headed? We're going to continue to deliver on our strategy. I mean, again, we're low cost. We're generating operational cash flow. We managed to adjust our commercial strategy to navigate lithium cycles. So we are going to deliver on a strategy to increase production capacity again. And so a quick recap here. We are expecting to reach 100,000 tons per year of LCE equivalent, production capacity by the end of 26. And here we kind of dissect and break it down in blocks how we're going to get there. More importantly, we are going to build 20,000 tons equivalent of LCE of concentration capability to fully back integrate into a potential lithium sulfate chemical plant. This is a key part of our strategy. If anything, because we'll be executing the metallurgical reduction of our own premium lithium concentrate. So we're gonna bank on our own metallurgical premium pricing for our shareholders, which is in the order of 20 to 30%. So looking at this page, so where are we? We're here entering 2025. This is where we're headed. We're completing, we're executing the Plant 2 construction. So the capacity there in LCE equivalent is shown in 34,000 tons. Then we have the Phase 1, which is delivering a 37,000 tons equivalent. Now, we continue on this construction project, and we have more pictures from the book posted online to show you that we already cleared the area to prepare for earthworks throughout. So basically, we'll clear it for the phase three as well, which will be essentially approximately 35,000 tons out of the 54,000 tons over here. It's important to notice that that's not yet funded. So the blue are the portions that are not yet funded. So when we look at the Overall, when you look at the full-on capacity increase here, we see that we're going to have 105,000 tons of lithium concentrate capacity, and then we plan to have 20,000 tons of integrated lithium sulfate capacity by 2027. So this is sort of how we set out our strategy and we are going to execute it in the typical prudent and conservative way that we've always done. And this is what enabled us to deliver on these industrial facilities on budget and on target. And more importantly, with a financing structure that is conducive to the company's cash generation and repayment capabilities. So that discipline is what enabled us to get here and that discipline is what will enable us to get there. So my closing comments. So over the year, we transformed Sigma. We're very proud of what we built because we transformed Sigma and we placed this company as a leading global lithium producer. More importantly, we demonstrated that we're one of the most resilient lithium companies to all the cycles. That is the result of the operational discipline, the low cost, and obviously the industrial prowess to allow us to deliver this on a large scale. We have a phenomenal team. We've got Rogério here, we have Matt on the line, we have all of our technical general managers sitting on site. So we're very, very proud of the commitment of our team. Just recapping what we've done in nine months out of this year, essentially we achieved the financial independent. So we managed to basically adapt and strengthen our commercial strategy. We signed this transformative contract. development bank loan with the NDS, building what we believe to be a lifelong partnership of progress in the lithium industry in Brazil together with the NDS. Then we managed to declare final investment decision on phase two and mobilize to deliver the earthworks and the construction engineering you can see happening. Also, Last semester, we increased our mineral resources by 40%. So demonstrating that we got an ample reservoir of mineral resources and mineral reserves to deliver on the production capacity targets we just outlined on the previous page. Again, we began phase two construction and achieved the cost guidance we set out at the beginning of the year in one of the first conferences. And we surprised the market in our ability to be disciplined and to get there, given that at the time, our financials were still cluttered from the commissioning expenses. So what's next? Well, it's going to be boring now. We're going to be executing on time, on budget, and we're planning to have a phase two commissioning in the third, initiate commissioning in the third quarter of 2025. So with that, I close the presentation and we move on to the Q&A. Matt, on to you.

Thanks, Anna. Rob, we will pass it on to Q&A. I think we have a few questions on the line if you'd like to start moving through the list.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question today comes from the line of Steve Byrne from Bank of America. Your line is open.

Yes, thank you. I have a couple of questions really directed at your commercial team. Are they perceiving any changes in interest level from your converter customers? in your spodumene, is that interest level changing? Are they seeing increased interest? Is it flattish? Is it slipping? You know, and is there a change here because of any increased interest in your product because it has the processing benefits? Or is there a sense out there that, you know, supply and demand may be inflecting here? So, question on that, and then also, how far out do you book orders? Is there anything there that you can comment on for us with respect to what you think, you know, net realized pricing could go to from here, you know, in this quarter or next? Is there any inflection that you're seeing?

No, these are two very good questions. The first question is, you hit the nail on the head here. As we now have basically a year of data points, or at the time we decided to make this change, we had about six months of data points on the performance of our material with the customers. It became clear to us that because we haven't been able to fully monetize the metallurgical premium of our product, our product would always sell. But not only that, it would always sell and it was seen as a source of blending material or as a source of gross margin by the tolling and the downstreamers that engage in tolling arrangements. Because that metallurgical premium is actually enabling a 20 to 30% cost savings to the customers which were not priced in the product. So we had that confidence that we would always be able to sell our entire cargo loads. With that confidence, we decided to switch into what we call the trader's distributor commercial policy strategy. Why? Because that is how we managed to navigate the seasonality by essentially organizing with the trader to resell the product just after seasonality. Which ties back to your second question. We kept on taking orders in the order book throughout the year. And this is sort of how we get our own data points on the ground off the switch in sentiment from the other element that is there, which is a pickup in demand in China given the initial results of the stimulus in the new energy vehicle industries and the auto sales increase of 44% in September show that. So by collecting orders throughout the down cycle of the low of the summer and then entering in the fall and then throughout the fall, we were able to ascertain what was the changing sentiment directed at and that's very easily know triangulated with the gfax um and therefore execute all the the trades extremely well uh basically uh at once almost like within very few days of spacing out throughout some of those weeks in october now the second part of your question is also very important because as we were entering we can't time the market perfectly obviously but as we were just entering the period of restocking and the seasonality, the benchmark was showing 750, but we were able to collect orders and book trades at 820, 800. So a $70 per ton difference to benchmark, which is sizable, right? But then more interestingly, as we held back part of, as the traders distributor was able to hold back part of the resale of the October cargo just now this week, we've seen data points of $920. And again, now we're learning that this is very easily triangulated with the GFEG. So this ability to actually navigate the seasonality, meaning contrast that to us selling these shipments on the water throughout the summer low cycle, we probably would have had shipments priced at $700, which were some of these benchmark indices showing at the time. And we unfortunately experienced that pain earlier in the year because our trader was the principal. So we didn't have the ability to co-control final resale decisions that come with the relationship changing to trader as distributor. So we're very proud of what we achieved. But again, it took us months to It took us a few months of being actively in the market, having our commercial team. We have commercial people in China now to be able to gather what we believe is a pretty good reading of the market dynamics in Asia.

And Anna, maybe just one follow-up on that. With some shuttered capacity in Australia recently, are you holding back again? or are you perceiving any increased interest in buying from your customers?

Well, I think there's a deeper issue behind this, and that's related to traceability, lithium source from artisanal mining, illegal lithium, and all that we've been watching in the market this year. As we all know, the volume of the shut capacity wasn't meaningful to actually have a real effect in the market. It had a psychological effect in the market because it kind of demonstrated that some of the mines in higher cost jurisdictions are not economic at current lithium prices. But that leads to the question of who is economic in current lithium prices. And essentially, when you run the math, you have The two large scale producers in Australia, they are economical because they have the scale and they're very efficient. And then Latin America and then Africa. But then you examine some of the supply that comes from Africa. That's okay. It's industrial lithium, fair game, excellent, lifting the people. But some of that supply is untraceable. So I think the market, the real market dynamics we are experiencing, you know, on the ground, in the industry, this quarter is, is an increased scrutiny over the source of raw materials of that chemical. And some of the car makers, they are very aligned to sustainability and ESG practices, are actually leading that charge with their supply chain. So we've been seeing joint procurement initiatives between battery makers and car makers, our clients, right? We've seen quite a lot of interesting developments. The real development here is now there's a spotlight in the industry basically asking, well, do your employees wear helmets? Are your mines traceable? Is this artisanal? Are you ethically sourcing your lithium, which probably will displace a much larger quantity from some of these materials mined in complete disregard to the 21st century and the new era of valuing the individual and valuing human beings that we see taking place in the century.

Your next question comes from a line of Katie LaChapelle from Canaccord Genuity. Your line is open.

Hi, Anna. Congrats on a good operational quarter. I do want to understand the provisional pricing adjustment a little bit more this quarter. It was quite a bit higher than what I was expecting. I noticed in the prepared remarks you stated that it was related to a shipment from Q4. So I'm just trying to understand why such a significant delay, like why was this only being reported now in Q3? And then going forward, are any of these adjustments expected to continue into the fourth quarter or are we kind of through the worst of it now?

No, I mean, we closed out this open trades and this is basically an accounting close out of the trades. And essentially you can see in the year to date, let me just, is this, yeah, is this, yeah, that's there. We can see in the year to late, that's why we did year to date. Every quarter we've been getting these questions about this provisional price adjustment. So I'll start with the picture in the year to date. As you can see here, basically most of it is related to the fourth quarter of last year, right? So $20 million of the 29 is related to the fourth quarter last year. So why the delay? Because these trades stayed open and they will be rolling into these commercial relationships and saloed with the unpaid portion of the previous year. As we change the contracts and change the commercial relationships completely, we just closed out this in our books. So essentially what we're showing here is basically the complete closeout of all these open trades, G2, G3, G4, basically all the trades, the six boats all the way from the fourth quarter and the first quarter closed out completely. on an accounting basis, right? So, and interestingly enough, this closeout generated a positive cash inflow of 7 million US dollars because that was the remained unpaid portion of those trades that actually we got to receive and we were no longer rolling out into the subsequent vote to absorb either upward adjustment or negative cash adjustment. We can go through that in quite a lot of detail with you in a call, we have a page in a posted material online that kind of shows that Matt did that work and it's very good work. If we reallocate all these adjustments to each respective quarter, you can clearly see how they even each other out and show that the trades were actually accurately marked in our book. And again, this was a closeout of all the open book trades, right? mostly related to the fourth quarter. Now, why the fourth quarter? Because that's where the price dropped precipitously. We had done the markup. We suffered that cash hit throughout the year, but then the accounting books, given that these boats got shipped in the first quarter, we were evaluating whether those prices were actually correct because they seemed too low if compared to the benchmark in December. But as we all know, the prices actually fell lower than the benchmark could capture throughout the fourth quarter. So it was what it was. So it took us a while because we were closely examining each one of the deliveries to be absolutely sure that that was the actual correct realized price.

Got it. Maybe a follow-up question. I just want to pivot a bit to phase three and four. You are talking about those expansions more? I know it's still early days, but how are you thinking about maybe the capital costs for both of those or how you're thinking about funding those? Because, you know, we are sitting almost in 2025, so 2026 and 2027 is pretty soon.

No, I mean, we have obviously quite a competitive advantage in now this, you know, development bank relationship with BNDES. What you see in front of you is what we presented BNDES with as our complete industrial development plan for processing lithium and for aggregating even more value to lithium in Brazil, delivering the lithium chemical. So they've been an incredible partner for Sigma. And so essentially the way we see the funding, well, first, the amount of funding. As you recall, and we posted that slide again online, It's more of the same. We're going to build a third plant exactly like the second, which is exactly like the first, minus the infrastructure. So looking at the final capex for this second plant is going to cost us around 98 million, 95 million US dollars, depending on the BRL rate, which works to our favor because about 70% of the equipment is actually nationalized as Brazilian, right? So that's plant two. Plant three will be the same. So our typical DMS green tech plant costs about that much, $100 million. Now, the current infrastructure supports three lines, and this is why we highlight 105,000 LCE, right? That's what's built in infrastructure on site. Well, in order to build a fourth concentrator there, What else do we need to do? Well, we need to add capacity in the water treatment area and in the substation, adding more transformers to power that fort line. That is not a whole lot more infrastructure. That should be around 15 to 20 million US dollars in infrastructure versus the 50 million US dollars in infrastructure that we spent to put it all there. Why? The industrial site is prepared. The water, the pipeline that brings the water, the sewage water from the Jackie Chinonye River to site is already there. It's a six kilometer pipeline. All of it is there. And that takes care of a fourth unit. But operationally, we need more water treatment capacity and we need more power. Now, the... Intermediate lithium chemical. We haven't concluded the studies, so we will be talking about the CAPEX there once we conclude the studies. But again, I will advance that we will do this the Sigma way, which is the China way. We've demonstrated that we build it quite cheaply in Brazil. In fact, we are looking to partner with the larger producer of calcite rotating kiln equipment in China, which is used by Albemarle in North Carolina, is used by everyone around the world in order to deliver this unit. It's a quite simple unit. I mean, it's a rotating kiln and an acid-leach unit, sulfuric acid-leach unit. So beta-spodumene, acid-leach, lithium sulfate. So it's not all the way down to specialty chemicals. Now, with that, we plan to become the linchpin of a global chemical-to-chemical supply chain. And perhaps... making life easier throughout the Northern Hemisphere for all of our potential customers that would want to set up specialty chemicals in their own territories. We'll be shipping chemicals. We will be upcycling the waste here in our cement industries in Brazil. So zero waste. And therefore, we ship a clean chemical material and they don't have to deal with the waste generated in this area. reduction process, which is quite large. It's 12 tons of waste per ton of chemical.

Not to belabor this, because again, we will release more details in the study, but I think just to add, right, the goal is to not compete against China in the carbonate or hydroxide markets, given what we see as a highly subsidized business there and pretty competitive margins. Our goal is to still sell into that market and bank what we think is the value and use we have domestically as well as the local economics. Sorry, Ana.

We will supply China. In fact, the litmus test for this strategic decision was that we received significant interest from China our clients in China, because I think the cherry on top is that we can deliver negative carbon lithium sulfate to China. So perhaps we could even enable zero carbon lithium carbonate chemicals in China and help decarbonize the entire lithium supply chain. So again, interest from everywhere. We're here to deliver a product that's going to be globally competitive. Half the market is China, half the market is the rest of the world. So competitive all over. It isn't something we're doing just for part of the market. It is, again, like our lithium oxide concentrate is a globally competitive product. And at that, we get the development bank financing. because their mindset is to finance what we call the industrial champion, the Brazilian winning companies that actually are gaining market share and positioning Brazil globally in key export industries. In this case, critical minerals, lithium.

Our next question comes from a line of Joel Jackson from BMO. Your line is open.

Good morning, everyone. I'm going to ask a few questions one by one, if that's okay. Just maybe following up on Katie's question. So if we think into Q4, you know, should pricing be similar to Q3? Can I think about, you've given production, so can I think about grade and cost being similar? And you said you've closed out some of the Glencore stuff, but again, for pricing, can we think about it being similar Similar to Q3, better or worse so far?

This is basically third quarter. You can see on the screen. So we actually booked final trades at 820. The market oscillated because it became very volatile for a while in October, but it's... Here, can you see the screen? Yeah. Yeah, there you go. So... Yeah, that is so you can see it. Yeah, we're all seeing the same screen. Exactly. So this is third quarter and it's pretty close to final. In fact, 820 was a trade we booked final. So you're going to get the same ballpark. And we're showing you the grade adjustment as well. So it's from 6% to 5.2%. So that's kind of the question now, right? So essentially, how does grade work here at Sigma? We're probably one of the few companies that could be delivering 6% without that much loss to volumes. But because nobody else is, and this is not appropriately priced, clearly, right? What we do, Joe, is we set our product to Australian quality. So we harvest what is, you know, what's being offered by our Australian peers and what kind of grade they are offering in the market. And we adjust our plant quality down to that grade because it's very easy to adjust down, right? Hardest to adjust up so that we benefit from a rather exponential increase in volumes when we conduct that process or we bank that over as inventory.

Okay, that's helpful. And then a couple of questions. So I want to ask about production at phase one and then thinking about phase two. So I'll ask a couple of questions at once here. So, you know, as recently as a few quarters, a quarter ago, you were really talking about 22,000 a ton production sales run rate. Now you've sailed into 20,000 tons, 22,000 a month. Now you seem like you've sailed in 20,000 a month. The first part of the question is, what's kind of changed between the 22 and the 20? And the second part of the question is, I think you've maybe made a big contractor change for phase two. Can you talk about that? It seems like you spent very little CapEx. on phase two and Q3. So, you know, talk about the contractor change, how much capital you spent on phase two so far, maybe in October, November. So a couple of questions there, sorry.

Well, let me talk about the production first. 60,000 is guidance because essentially we conducted our efficiency project this quarter. So we're hoping to guide and beat guidance again. But the cadence of 22,000 is actually a very good, it's a great observation. We try to achieve that cadence, but the real accomplishment as we harnessed our operational capabilities here and increased the performance excellence was to shorten the space or the number of days intervals between each shipment. So as we announced each shipment, you can easily ascertain that by looking at the announcements. they became shorter and shorter, and now they're close to 30-day cadence, right? So this kind of gives you an indication where we're going, meaning we're shipping 22,000 every month. So multiply by 12, that's it. So as we haven't done that throughout the whole year, so we're basically guiding and hoping to be guidance. But ultimately here is that frequency decrease of the same volume that is actually the real accomplishment, because with that, we are increasing the total quarterly production. So that was your first question. Then your second question is about Phase 2. So we're planning to publish a more comprehensive update on Phase 2 shortly, and that will have the CAPEX disbursed total for the Phase 2. But we estimate now that with the first BNDES disbursement, and that's an important point Rogério made that I'm going to reiterate. The first disbursement of BNDES is pending the bank guarantee. So when it happens, when we get the first actual cash in the banking flow, that reimburses us for all the capex spent in arrears since the moment BNDES announced our loan, which was February 9th, of this year. So everything we spent in CapEx throughout gets reimbursed at once in that first disbursement by BNDS. So it gives us sort of a boost because we've been using some of the cash generated to pay for CapEx. For instance, this quarter it was $5 million, but then we kind of get to recoup that at once as a boost of cash inflow. We estimate now that that sits probably close to $25 million. And again, there are fluctuations here because of the devaluation of the real currency, right? But just to give you guys a number in dollars, it should be around $20 to $25 million, right? And again, it's mostly real expenditures. So that's the number that we have incurred on to date on the CapEx. The third question was around the contractor change in in phase two and what have you. It wasn't really a change. What we've done, and that's a very good question too, because we wanted to clarify that point. We maintained the same engineering company, DRA, that actually worked on our filed feasibility study in CEDAR in the 43-101, which we will be updating together with the annual filing. What we have changed, and that was a significant change, but it's a natural change, is the way we're going to manage that construction. Because in the phase one construction, we relied on a local engineering company for safety, for local management, local engineers, for basically running construction because we didn't have a construction team in-house or project management capabilities in-house or much of that. So we were entirely reliant on our engineering contractors to actually deliver that construction. That is the change. this construction is being done in-house with our team, with our personnel, because we have probably one of the best project teams in the whole industry based on all that we've executed in the very, you know, plant one throughout the last 12 months in terms of implementing operational efficiency. So essentially that project team has, you know, already been clearly demonstrating their, you know, incredible execution prowess. And this slide, which sits in the file materials, actually shows that we executed a full plant shutdown with two major pieces of equipment, you know, assembled and commissioned in four days. I mean, and I even put here what the plan was and the real was. And we were having like three daily calls with the team to kind of follow the progress of how this was being executed. But essentially that we call the efficiency project for the green tech plant was, you know, it's been executed over many months, but it was actually constructed in four days, right? We got all the equipment to site. We got it all ready. We shut down the plant, put the equipment up. You know, it was marvelous to see how well oiled machine we have in terms of our, you know, maintenance teams, project management, all of it, right? So in fact, the results of that, I'm going to reiterate, were already partly reflected in third quarter, but it's going to be mainly reflected now in the fourth quarter. And that will be a potential increasing production of another 10 to 15%. In another picture, just to show that, and I really want to show you this picture. So you see here the screens on the ground? Three days later, they were up and running. This is the screens to upgrade the ultrafine circuit to improve the feed mix. So essentially, it's optimization of capacity. We're like Micah and what have you, so that we optimize our DMS capacity to 230 tons an hour to probably 240, 250 tons an hour. And here, the same with magnetic separators. So you see them on the ground. Literally, in three days, they were up and Rani, which is, for all of you who know magnetic separators, is an incredible accomplishment from our industrial team. So, again, the purpose here is to clear out, again, the iron oxide and also remove the ferrosilica and recycle the ferrosilica. So we're very proud, I mean, of the commitment and the prowess of our teams, and particularly our industrial teams.

Our final question comes from the line of Shannon Gill from Cormark Securities. Your line is open.

Thanks very much, guys. Just following on from Joe here, can we expect increased recoveries in Q4 with the ongoing plant optimization and in Q1 of next year as you move from using mobile crushers to a fully optimized phase one plant crusher, can we expect continued recovery increases? Can you just speak to recovery there?

Absolutely. So you make two excellent questions, and I want to bring this point back again. Essentially, we are indeed going to experience increase in global recoveries. And I want to take the opportunity to clarify a fallacy and a misunderstanding about our plant recoveries. I mean, we're basically getting to plant recoveries in a dense media separation that is the highest in the world. This has never, ever been achieved. It's 70% of DMS recoveries. But then you look at our global recoveries, meaning total recovery, it's 55%. So that gap is up for grabs. It's opportunity for operational improvement. How so? by managing to reprocess and to treat and concentrate the fines that are responsible, ultra fines that are responsible for this difference into that DMS green tech plant. We have two projects that we are planning to achieve that. The first one we just executed. So absolutely yes, that's the answer. We expect these recoveries to kind of reach, you know, pretty close to 60% or perhaps more in global recoveries because what we put here was a circuit that, in addition to optimizing the capacity of the DMS itself, will actually improve the recoveries of the lithium oxide in the ultrafines. One. Then mobile crushers. Mobile crushers was... a different matter. What happened to mobile crushers, it was a design engineering change. In other words, we contracted the mobile crushers with a local Brazilian supplier and the method through which this crusher executed their tasks, instead of having the motor and the screen separate, sliding on each other, Their design was one where the screens and the motor was connected and they would slide together. So any issues with screens would mean we would have to stop the crusher. We've been dealing with it most of the year. And then finally, we had enough of it, decided to put in two mobile crushers in June and July to basically pick up the balance of our main crusher so that we would run our crusher at a lower capacity, and then change the way that flow occurs. In other words, we went to the original parts manufacturer in South Africa, it's called Vibramat, and we're getting the new circuit where screens and motor vibrate separately so that the crusher is more resilient operationally. And therefore, we expect the crusher to be a non-hinderance. Because again, we have this incredible dense media separation green tech plant, and we're having issues with a crusher, which is kind of basic. It's the most basic part of our circuit. So think about this. We fixed the module three, the dry stacking, which doesn't even exist in the industry. That was last year. Then we perfected the dense media separation to process lithium like no other in the world. So We basically evolved this technology and we were getting stuck with lower production volumes because of the crusher. It was kind of sad, right? So we decided to tackle it at once and essentially put mobile crushers, which are here temporarily. So they're costing an extra $25 a ton. But then in December, we decommissioned the first. And then in February, we decommissioned the second. We built a nice stockpile to actually change that crusher flow sheet.

I'd say one more thing. All of these changes comes back on, uh, on phase two, you know, all this investment, all this work will, will come, you know, exactly that work we have to do again. So lessons learned and capitalized.

Yeah. Great. Thank you.

I think that was it, Rob, if you want to, or Anna, if you want to make any closing comments, we're, uh,

Now, again, I want to thank you for your trust, for your confidence, for believing in us, executing through the lithium market ebbs and flows. As we demonstrated, we're one of the most resilient businesses in the industry. We're in a low-cost environment. This is now being underwritten by some of our co-op competitors in other parts of the world, which we're all welcoming here in Brazil. Again, I want to leave the quarter call with a message of what we call sober optimism, because one thing for sure, we reached the floor, given that so much of the traceable compliant production of lithium is not profitable at these levels. We are, but unfortunately, most of the production of traceable material isn't. And the industry is clearly, you know, increasing the game, raising the game on procurement and focusing on, you know, examining traceability of the product. So we believe that with the removal of quite a lot of untraceable material, mainly coming from Africa, we're going to see, we saw the floor being placed in the industry and we're going to see, you know, a decent year in 2025. And I think from there, as you can see, then in demand, The dynamics is there. China's been posting very, very robust EV growth numbers for a market that large and with the penetration that large. September was 44%. October is reaching 50%. EV uptake is over 50%, which is a record number. China will be probably almost 60% of the global EV industry by the next quarter. So, you know, it's extremely healthy there. one of the key recipients of the stimulus, the very stimulus being directed at the economy. So again, it's a message of sober, cautious, optimist entering into the fourth quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.