Operator: Our next question is from Kevin McCarthy at Vertical Research Partners.
Matt Hettwer: This is Matt Hettwer on for Kevin McCarthy. Regarding the spodumene and carbonate auctions that you just touched on, what does the customer feedback been like? And how has the auction participation rates trended?
Eric Norris: Matt, this is Eric. We’ve got very good participation. We’re very early in our process. And so we’re very — with a qualification process to make sure we’re — we’re inviting people to these auctions that meet certain standards, but that’s growing over time. The participation rate we received and the corresponding conversion of those invited versus those who put in a bid has been strong. The interest has been, therefore, good and the outcome has been well received what we think about the market, particularly from a price reporting agency, we found that these through the normal surveying process, the results of these bids have found their way into the price reporting agencies. Of course, they determine how they use that in their next calculations, but it’s our anticipation that they’re lending there as well.
And then as we turn to the — to our sort of contracted customer base, they appreciate that what we’re doing is better understanding in what is a pretty immature market how — what the drivers are, as Kent was referring to different types of prices, whether that’s inside the country, outside of country or an IRA compliant, non-RA compliant product or a spodumene versus a better grade carbonate. It’s giving us better intelligence to better segment, understand what’s happening in the market and a lot of the same for our customers in the contract side ultimately because that would be reflected in the indices they referenced.
Matt Hettwer: And then as a follow-up, I believe in the prepared remarks, you mentioned expanding the auctions to other geographies and products. What other geographies are you looking at? And in the future, might you include hydroxide in the auctions?
Eric Norris: Yes. So I touched on a little bit when I talked about IRA compliant. But just as reference, almost — actually, all 4 auctions that we’ve done today have all been inside of China with available inventory on the ground there. We’ll be looking for product outside of China shipped on a CIF basis, for example. We’ll be looking at that certainly for our Australia product. We’ll be looking at it for [indiscernible] compliance ship to the U.S. and across our product range, including hydroxide.
Operator: Our next question is from Ben Isaacson at Scotia Capital, Inc.
Apurva Kilambi: This is Apurva on for Ben. So we’re heading into what has historically been a peak buying season in China just off of the earlier comments on demand, are you starting to see this restocking materialize?
Eric Norris: Yes, this is Eric. As I pointed out, we’ve seen inventories at a fairly low level, ending in March, and I do think a part of the demand is to restock in anticipation of the midyear and into later year seasonality of EVs. It’s one reason why it’s very hard to look at Q1 sales of EVs and correlate that to real on-the-ground demand because the EVs that are being sold in the first quarter this year were lithium for that was sold late last year — middle of the late of last year. And we are seeing — I think it’s a part of the demand that I referred to earlier, it’s not only fundamental demand for what our increased EV sales that are coming in that — we see in April and we expect in May and June, but also it’s a result of some restocking because some of the levels of which inventory gone to, it just weren’t sustainable for these operations to run without taking considerable risk of not being able to meet demand.
Apurva Kilambi: Great. And as my follow-up, looking back with your 10-K, you actually published an updated technical report on Greenbushes. With that report, we saw something of a step down in both grades and recoveries and concurrently, costs have moved upwards. Given those technical effects, where do you see the next phase of resource growth coming from for Greenbushes.
Eric Norris: Well, that’s you’re correct. You’re referencing a report that we published on our SEC guidelines, which are have a different standard. It’s not uncommon in mining for different standards around the world and different standards are more strict and how they should be exercised and that produced some of the results you’re describing. This is still even in that report on a relative basis the best spodumene resource reported in the world. And our aims are to continue, as we’ve described to — we are now executing with our joint venture partners at CGP3 expansion. There is the possibility long term, although we have not announced this formally or committed to it for further expansion of CGP4 and continued operation of that operation at its current grid reported for quite some years, decades to come. So our intention is to maximize that resource given its low cost potential.
Operator: Our next question is from Michael Sison at Wells Fargo Securities.
Michael Sison: Good start to the year. You have a slide on sort of minimum capital and I think the line looks like billion. So if hiking kind of stays here, is that where CapEx will go in ’25. And what would that mean to your capacity potential in longer term if that has to be the case.
Neal Sheorey: Yes. So I think we’ve commented on that earlier. So we can — we would look at the billion that’s kind of maintenance capital for us around to maintain our assets and continue to operate there. And we could — if we — if prices stay where they are, we could get to that kind of on a run rate by the end of ’25, so ’26 number, so to speak. ’25 would be a little bit higher, but we get to the run rate by ’25. That would impact our long-term growth if we went to that level. So the current planning that we have, the projects we’re executing at the moment, get us kind of a 20% growth rate through ’27 or so. And if we were to cut back to those levels, we’d impact that materially beyond that.
Michael Sison: And as a follow-up, your EBITDA margins for any storage, they’re pretty good. And I know you think we need — you need higher pricing for the industry. So I mean, what price do you think lithium needs to be at to support the growth that is expected for the end of the decade, and maybe any thoughts on where you think others around the world who are — where their margins are because yours are again, from a — are pretty good, not as good as it used to be, but I think there’s still a pretty good margin.
Eric Norris: Right. So I’m not going to comment on other people’s margins. But if we stay where we are, we can operate at about — at a 30%-ish type margin rate once we get the noise out of the P&L, that kind of the transition from the big prices and some of the spodumene costs. So on a run rate we could get to around 30% and still grow our business for us. I think that’s the good margins that you’re talking about. We’ve had stronger margins than that, and they would be stronger if prices move up. The issue with price is really about returns on new investment projects more than it is about our existing business, P&L and the margins that we can deliver. So prices need to move up in order to develop new projects to get the growth the industry needs to support the EV transition.
I’m not going to comment on because it’s different by every project and every geography as to what price you need and you need to believe that for 10 or 15 years in order to get a return on the project when you go through FID. So I can’t say a number and if I had one, I probably wouldn’t say it, but they are different by geography, by region, by technology, what the resource looks like. So it’s quite different. There’s no way to pick one particular number.
Operator: Our next question is from Joshua Spector of UBS.
Chris Perrella: It’s Chris Perrella on for Josh. I just wanted to follow up on Neal, the 2Q Energy Storage EBITDA margin that you guided to, given the puts and takes, you have the higher cost spodumene inventory, which is maybe a $50 million drag in the second quarter, but you also have the one-off from Talison. So how does that bridge together to get to your 2Q margin? And then does it step down with the absence of the Talison one-off in the second half of the year?
Neal Sheorey: Yes. So I think if I — let’s talk about the second quarter first. So basically, the way to think about this, I think your numbers are probably all in the right kind of range. If you do the math based on the first quarter and what we said in the prepared remarks that we expect about a 10-point bump in energy storages, EBITDA margin in the second quarter. You probably will get into the range of about $100 million bump to EBITDA Q2 versus Q1. And that’s really just driven primarily by the expectation that all partners are taking their allotment off of Talison plus we have that additional 200,000 tons that is getting offtake in the second quarter as well. And so that’s basically what serves as the basis for the 10 percentage point bump.
In terms of then going forward, it is sort of a onetime bump up. And then what you should expect in the third and the fourth quarter is that we’ll come back down to again, pretty healthy margins. It won’t be as healthy as the second quarter. But you can expect that we will, as our plants continue to ramp up and we continue to absorb fixed cost, that will continue to get some margin expansion versus the first quarter, for sure, in the third and the fourth quarters as we exit the year.
Chris Perrella: That’s perfect. And then a quick follow-up. Sequentially into the second quarter, do you expect volumes to be up? I’m just trying to bridge the seasonality to get to the 190 [indiscernible] for the full year?
Neal Sheorey: Yes. So we will have volume — at least sequentially, what you’re asking about is, yes, we will have some higher volumes as we get into Q2 versus Q1. Remember that the peak for energy storage demand is usually in the third quarter. So we’re building to that peak. So it won’t be the highest quarter of the year. But yes, I would expect that you’ll see a little bit higher volume in Q2 versus Q1.
Operator: Our next question is from Colin Rusch at Oppenheimer.
Colin Rusch: Given the dynamics around geopolitical positioning on manufacturing for batteries and some of the evolution of the tariffs that we’re seeing on the solar side and other areas. Can you talk a little bit about the importance of refining and your thought process around that importance in North America as you enter into the balance of this year and next year?
Netha Johnson: Yes. So okay, interesting question. So the politics is playing into the market significantly, and we’ve got the integrated strategy. So we’ve got a good resource position, and it’s spread around the world, so we have nice diversity around that. And we’ve built conversion. So we have conversion in Chile, in the U.S., lower scale at the moment. And Australia and China. So we’re spread around the world, and we’ve got nice diversity around that and it allows us to kind of plan for some of these aspects. So our goal would be to have larger scale conversion in North America to satisfy the North American market and we are — but we’ve paused on that a little bit, just on some of the issues that you’ve described, price being a big one, how geopolitics plays into it. And we’re going to use that pause to figure out exactly what we do around that.
