Arcadium Lithium plc (NASDAQ:ALTM) Q4 2023 Earnings Call Transcript

Arcadium Lithium plc (NASDAQ:ALTM) Q4 2023 Earnings Call Transcript February 22, 2024

Arcadium Lithium plc misses on earnings expectations. Reported EPS is $0.34 EPS, expectations were $0.36. Arcadium Lithium plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to the Fourth Quarter 2023 Earnings Release Conference Call for Arcadium Lithium. Phone lines will be placed on listen only mode throughout the conference. After the speaker’s presentation, there will be a question-and-answer period. I will now turn the conference over to Mr. Daniel Rosen, Investor Relations and Strategy for Arcadium Lithium. Mr. Rosen, you may begin.

Daniel Rosen: Great. Thank you, John, and thanks to everyone for joining. Joining me today are Paul Graves, President and Chief Executive Officer; and Gilberto Antoniazzi, Chief Financial Officer. The slide presentation that accompanies our results, along with our earnings release, can be found in the Investor Relations section of our website. Prepared remarks from today’s discussion will be made available after the call. Following our prepared remarks, Paul and Gilberto will be available to address your questions. Given the number of participants on the call today, we would request a limit of one question and one follow-up per caller. We will be happy to address any additional questions after the call. Before we begin, let me remind you that today’s discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to those factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.

Information presented represents our best judgment based on today’s information. Actual results may vary based upon these risks and uncertainties. Today’s discussion will include references to various non-GAAP financial metrics. Definitions of these terms, as well as reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP, are provided on our Investor Relations website. And with that, I’ll turn the call over to Paul.

Paul Graves: Thank you, Dan, and hello, everyone. This is the first earnings call for Arcadium Lithium following the official close of the merger between Livent and Allkem on January the 4th of this year. We’re excited to begin operating as Arcadium Lithium, building on the strengths of two highly complementary organizations with a focus on continuing to grow as one of the leading global producers of lithium chemicals. While lithium and energy storage market dynamics have been somewhat volatile since our merger announcement in May of last year, the underlying strategic merits of the transaction remain as strong as ever. For the larger, more diversified, vertically integrated company, we are better positioned than either of the companies alone to meet the growing needs of our customers.

A technician connecting a lithium-ion cell to a battery charging system.

And we have even greater flexibility to take advantage of opportunities available to a diversified integrated lithium chemicals producer across all market cycles. Arcadium Lithium is growing its volume significantly as a result of multiple years of expansionary investments and 2024 is highlighted by an expected 40% increase in lithium carbonate and hydroxide volumes compared to 2023 as a combined company. In addition, Arcadium is expecting to realize $60 million to 80 million of total synergies and cost savings in 2024. We will go into further detail on the major components of these cost reductions, but the savings are driven by a combination of positive developments in our initial integration efforts and from accelerating certain actions as a result of the current lithium price environment.

These higher volumes and cost savings are reflected in the outlook scenarios we are providing for Arcadium Lithium’s first full year, which we are providing in a different format than that provided historically by either Livent or Allkem. The lower price environment is also leading Arcadium to slow the pace of its growth capital spending in 2024 and to extend the timelines for some of its ongoing expansion projects, as we will discuss further. This reduction will not impact our ability to deliver volumes under existing customer commitments. It will provide us with an opportunity to undertake a comprehensive review of the existing expansion plans from Livent and Allkem in order to maximize the capital synergies available from our co-located projects in Argentina and Canada, as well as optimize the operational flexibility of future production.

I will now turn the call to Gilberto.

Gilberto Antoniazzi: Thank you, Paul. Turning to slide four, our merger closed earlier this year following votes of approval from both Livent and Allkem shareholders. Arcadium Lithium ordinary shares are trading on the New York Stock Exchange under the ticker ALTM. In our foreign exempt listing via CHESS Depositary Instruments or CDIs is trading on the ASX under the ticker LTM. Because the merger closed after year end 2023, the 2023 10-K to be released by Arcadium Lithium will only include historical results of Livent’s operations. At this time, we can share that for the full year 2023 Arcadium had combined revenue of approximately $2 billion and a combined consolidated cash balance of $892 million with combined cash net of that of roughly $297 million as of December 31st, 2023.

We expect to provide calendar year 2023 pro forma financials early in the second quarter of 2024. And we release combined results for the new company beginning with the first quarter of 2024. For this reason, we will discuss the fourth quarter and full year 2023 performance for both companies on a standalone basis. And in formats consistent with previous disclosures. Starting on slide five, Livent reported fourth quarter revenue of $182 million, adjusted EBITDA of $91 million and adjusted earnings of $0.34 per diluted share. Volume sold were roughly flat with lower average realized prices across all lithium products in addition to slightly higher costs. Despite a challenging lithium market environment in the fourth quarter, Livent achieved an adjusted EBITDA margin of 50%.

For the full year 2023, Livent reported revenue of $883 million, adjusted EBITDA of $503 million, and $1.89 of adjusted earnings per diluted share. These were all meaningful improvements versus the prior year and record results for Livent. This was a result of higher average pricing and lower overall costs. And it’s highlighted by full year 2023 net income growth of 21%, and adjusted EBITDA increase of 37%, and an improved adjusted EBITDA margin of over 10% versus 2022. Turning to Allkem on slide six. On a 100% ownership basis, the Olaroz carbonate facility achieved calendar year fourth quarter total revenue of $96 million. With just under 7,000 metric tons of carbonate sold. Compared to production of just over 4,100 metric tons. At an average realized price of $13,564 per metric ton.

For the full year 2023, total revenue was $511 million with 17,879 metric tons of carbonate sold at an average realized price of $27,788 per metric ton. Sales and production were broadly in line for the full year. For the Mt. Cattlin Spodumene operation, fourth quarter spodumene revenue was $46 million, with roughly 60,000 dry metric tons sold with 5.3% average grade, at a 6% spodumene equivalent price of approximately $850 per dry metric ton. The realized spodumene price decline in the fourth quarter was amplified by two specific factors. A shift to forward-looking reference price mechanism with customers, consistent with the shift seen across the industry, and the timing of shipments all occurring in the second half of the quarter, when the market was particularly challenged.

From an operations perspective, production grade and recovery rates both improved slightly versus the prior quarter. For the full year 2023, spodumene revenue was $571 million. We just under 205,000 dry metric tons sold with 5.3 average grade. At a 6% spodumene equivalent price of roughly $3,100 per dry metric tons. Full year production was roughly 34,000 dry metric tons higher than volume sold, which we’re carrying into this year and brings our spodumene inventory to more normalized levels. The notable decline in fourth quarters spodumene and lithium carbonate prices was especially notable at Allkem, given its practice of selling volumes largely on a market price reference basis. The resulting swings in profitability revealed the challenges of making significant stationary capital investments over multi-year periods, especially when it comes to having access to the cash needed to support these investments’ commitments.

This will be one of the key focus areas for Arcadium as we look to implement an integrated commercial strategy that provides greater predictability while also allowing the company to take advantage of attractive market opportunities. I will now turn the call back to Paul to provide some market commentary.

Paul Graves: Thanks, Gilberto. On slide 7, I’d like to provide some perspective on what we saw in the lithium market in 2023. In hindsight, the year was heavily influenced by inventory build in the energy storage supply chain. The more meaningful inventory increases were seen downstream of lithium, most notably in battery cells. It became clear that many battery cell producers had aggressively increased production in the fourth quarter of 2022, especially in China, in anticipation of elevated demand and prior to expiring subsidies. As a result, both cell and cathode producers reduced production rates as 2023 progressed and spot lithium purchase activity beyond the base volume contracts declined significantly. This drove a sharp decline in lithium market prices, starting in late Q3 and accelerating in the fourth quarter.

Given the price decline, as well as some negative headlines from OEMs who were perhaps overly optimistic with their earlier EV forecasts, especially in the US markets, the year ended with a notably bearish sentiment around lithium and energy storage. However, taking a step back, it’s important to recognize that underlying end market demand was actually very strong last year. 2023 global EV sales were up 33% for the year, approaching 14 million units on a roughly 17% penetration. China hit an all-time monthly high of around 1 million units in December, which was up 49% year-over-year and 10% month-over-month. Additionally, stationary energy storage demand continues to surprise to the upside, and growth in this segment should be stronger in a lower lithium-ion battery cost environment.

And while incremental lithium supply did enter the market in 2023, it did not come mainly from lower cost drying expansions. The new supply was predominantly higher cost material from spodumene out of Africa and lepidolite in China. The development of these assets was incentivized by the high lithium prices seen in the last market run-up. And they’re some of the first to be economically challenged in the current lower price environments. And while it is known that a number of these higher cost assets are still operating, they’re doing so in a price environment that is at or even below their cash cost of production. And it remains to be seen how long they can continue to operate in this way. We also see these assets as the most challenged when it comes to expanding output further in the future.

Moving into the first half of 2024, there are a number of reasons to be optimistic about the direction of our industry. However, we, like others in our industry, need to take into account the current environment when making capital allocation decisions. We have to look at the sustainable prices needed to support multi-year investment decisions. And when there are prolonged periods of market prices that are lower than these reinvestment prices, it reduces confidence in whether expansions will in fact be economically viable. We believe that prices will move higher in the future, which they need to do in order to incentivize sufficient supply expansion to meet our customers’ future needs. However, it is much more challenging to manage these capital-intensive projects through such volatile price environments, given the direct impact on our earnings and cash flow.

When we have prices for extended periods at the levels we see today, we have to be very cautious in how we use our balance sheet to fund expansions. It is clear that very few lithium expansion projects, including most ground field expansions in brine, make economic sense at current market prices. And the longer the prices stay near these levels, the greater the impact will be on future supply shortfalls. As we saw in 2022, this will increase the likelihood of a rapid increase in lithium prices at some point in the future, although the complexity of the global battery supply chain makes both the timing and extent of such an increase difficult to predict. We are seeing a response from both existing operators and project developers alike. Some higher cost production has started to come out of the market.

We expect this trend to continue. Additionally, we have seen more discipline being applied towards expansion projects as lower prices challenge the return hurdles on these multi-year investments. Tightened price volatility is reducing the appetite for financing development assets from sources, especially lenders, the many single assets pre-production companies have come to rely on. There is typically a slowdown in demand in the first few months of the year, coming up to seasonally strong fourth quarter. This year, many regional cathode and cell producers are expected to use the lunar New Year holiday period for extended downtime, which should help to support continued de-stocking at the battery cell level. As far as 2024 demand is concerned, growth expectations are still strong.

We’re seeing a growing number of more affordable EV models entering the market. BloombergNEF projects annual global battery demand to reach 1.25 terawatt hours, up 30% versus 2023. Additionally, longer-term investment commitments continue to be made downstream with additional support in North America and the US driven by the Inflation Reduction Act. This is highlighted most recently by GM agreeing to a $19 billion deal to secure cathode-active material supply in Tennessee and Toyota investing $1.3 billion to support its own EV plant in Kentucky, bringing its total investment commitment at the site to $10 billion. It’s also important to emphasize that reduced percentage growth rates, which will undoubtedly occur over time, do not necessarily mean reduced volume demand growth.

With year-over-year demand for lithium chemicals, in terms of total tons of lithium chemicals, continuing to increase meaningfully. The long-term trajectory for electrification has not fundamentally changed, even if, as we’ve been saying for a while now, that growth is not necessarily linear and predictable. As long as China continues to be the predominant source of demand and the location of the bulk of the supply chain for energy storage, there will be volatility and periods of aggressive production followed by de-stocking. Turning to slide nine, Arcadium Lithium will be growing its sales volume significantly in 2024, as a result of multiple years of expansionary investments. We are expecting to increase our combined lithium carbonate and hydroxide delivered to customers by roughly 40% in 2024 or to 52,000 metric tons at the midpoint on an LCE basis.

With respect to lithium carbonate, this is the result of the ramp-up of expansions of Fenix, which is our existing operation at the Salardel Hombre Muerto, and at Olaroz, both in Argentina. At Fenix, the 10,000 metric tons Phase 1A expansion is complete, and the production ramp-up process is well underway. We expect to achieve production of up to 7,500 metric tons in 2024 from this expansion and to finish the year at run rate operating volumes. This means we will have total nameplate capacity of 28,000 metric tons per year at Fenix. I will address the status of the Phase 1B additional 10,000 metric ton expansion shortly. For Olaroz, we are in the process of ramping up the 25,000 metric ton stage two expansion, where construction was completed in late 2023.

As a conventional pond-based process, this ramp-up will take longer than Fenix’s DLE-based production. We expect to produce up to 40% of capacity or 10,000 metric tons of carbonate from stage two and expect to reach run rate production by the end of 2025. This will bring total stated capacity at Olaroz to over 40,000 metric tons. Arcadiun will also benefit from the completion of multiple hydroxide production lines, which use carbonate from Argentina’s feedstock. We expect to deliver commercial volumes in 2024 from a 5,000 metric ton expansion at our US-based operations in Bessemer City, North Carolina, bring our total US hydroxide capacity to 15,000 metric tons. Additionally, at the end of 2023, we completed a 50,000 metric ton unit at a new location in the province of Zhejiang in China, which will go through qualification and ramp up in 2024.

This brings our total hydroxide capacity in China to 30,000 metric tons. Turning to our spodumene operations of Mt. Catlin in Western Australia, we are expecting 2024 production to be lower versus calendar year 2023. This is a result of pursuing a reduced mining and production plan as part of cost optimization efforts in light of the current low-price environment of the spodumene. I will now turn the call back to Gilberto to discuss our full year 2024 outlook.

Gilberto Antoniazzi: Thanks, Paul. On slide 10, you can see how our volume growth in 2024 translates into sales volume expectations by major products. Combining hydroxide and carbonate sales, we expect to increase our volume sold by a range of 12,000 to 17,000 metric tons, or around 40% higher than 2023 on a LC basis at the midpoint. Most of the incremental carbonate sales are expected to come from Olaroz Stage 2 production, while the additional hydroxide sales will be fed from the previous expansion. Within Lithium Hydroxide, we have opted to enter into multi-year agreements with a select group of core customers on roughly two-thirds of our total product volume. These agreements have firm volume commitments and a variety of pricing mechanisms, including some fixed prices for 2024 only, as well as floors and ceilings over the life of the agreements.

The subset of our volumes will help to reduce overall volatility by limiting potential downsides or upsides on our total revenue. As of today, the remaining portion of hydroxide volumes, as well as our lithium carbonate sales, are expected to be under shorter-term pricing structures, typically set on a monthly basis, that move with the agri-market references. We are expecting flat volumes in other specialty business, which is comprised mainly of Butyllithium and high curing lithium metal. Pricing is based on customer relationships, typically spanning many years, and is negotiated monthly or quarterly, taking into account movements in the broader lead to market. Lastly, our spodumene concentrate sales out of Mt. Cattlin today are largely being sold directly into China, a prevailing market crisis.

Because of the lack of longer term commitments, particularly given the limited remaining mine life today, we can be more flexible with respect to production plans as demonstrated this year. On slide 11, we have provided some other modeling considerations. We will address SG&A in capital spending shortly. Depreciation and amortization is expected to be higher than what has been seen historically. This is as a result of 2024 being the first year of production for multiple expansion assets, and therefore, when capitalized spending will begin to depreciate. The adjusted tax rate for 2024 is expected to be between the historical levels of the two standalone businesses. It will be an important point of focus as we further integrate our [indiscernible] as a global business.

The provider range is wider than we would expect moving forward in order to reflect the earlier stage of this work. Lastly, our higher estimated fully diluted shares outstanding of 1.15 billion is a function of the merger exchange ratios and is inclusive of 67.7 million of assumed dilution on the company’s convertible notes outstanding. On slide 12, we provide an update on the expected synergy and cost reductions for Arcadium Lithium. In 2024, the company is expecting to realize a combined $60 million to $80 million total cost savings. These benefits will be driven by a combination of lower SG&A expenses and reduced cost of production. Within SG&A savings will come predominantly from headcount reduction, elimination of overlapping services, and lower T&E and third-party consultants.

For cost of sales, we have identified a number of ways to drive efficiencies, from immediate to longer term, across all major aspects of production for all multiple production assets globally. This includes lower input costs on key procurement items, streamlining our manufacturing footprint, particularly at closely located operating sites, and improving our global supply chain network, we expect to continue to drive efficiency for a number of years going forward. Our expectations for 2024 cost savings are higher than they were at the time of merger announcement. Some of this has been brought forward by the changing conditions in our markets. But we also see more opportunities from our initial integration work than what we expected at the time of the merger announcement.

And there are a number of immediate cost reductions available. Longer term, we remain confident in the scope of synergies previously outlined and we will look to accelerate and grow them wherever possible. I will now pass the call back to Paul to discuss the outlook scenarios.

Paul Graves: Thanks, Gilberto. On slide 13, we are providing a framework to understand how changes in market prices may impact the financial performance of Arcadium Lithium in 2024. Arcadium Lithium’s current business mix makes it extremely difficult for us to give earnings guidance in the way Livent traditionally did, since so much of the outcome is now dependent on where marquee prices go during the year. We also recognize that simply multiplying volumes by marquee price does not work for Arcadium Lithium, given the nature of our multi-year contracts and the impact our other specialties business has on our performance. For this reason, we have shown two scenarios using lithium market price assumptions that are consistent with how our peers have presented recently, namely $15 per kilo and $25 per kilo on an LCE basis.

We keep constant the midpoints of expected sales volumes, synergy and cost savings and SG&A for 2024 while overlaying existing commercial agreements as applicable. These scenarios should not be interpreted as a forecast by Arcadium Lithium after the likely range of 2024 Lithium prices, which they absolutely are not. They were selected solely to allow investors to assess our potential earnings at a range of prices. With that said, you will see that even in a lower case, where Arcadium Lithium achieves a $15 per kilo average price per LTE on its market-based volumes. Arcadium Lithium’s business remains highly resilient, supported by our quality and low-cost production assets, while offering significant upside should a price rebound in fact take place.

Moving to slide 14, Arcadium Lithium expects to spend $450 to $625 million in growth capital spending in 2024 with an additional $100 to $125 million of maintenance capital spending. The growth spending, this is lower than what Livent and Allkem separately projected last year. We are still investing with conviction in the superior quality of our asset portfolio and believe we have a pipeline of attractive growth projects that is unmatched in our industry. However, in this lower lithium pricing environment, our cash flow generation and returns on capital investment are quite different, and we must adjust our pace of spending accordingly in order to maintain financial discipline. While we do not believe today’s price environment is representative of long-term prices, we have to run the business based on the conditions we are in today.

And that means being far more cautious with our spending while this environment persists. As we previously discussed, one of the major benefits of the merger between Livent and Allkem is the opportunity to both optimize and de-risk projects that have natural overlaps. And by slowing capital spending, we believe we will be better off longer term. Over the next few quarters, we will focus on accelerating the work needed to drive capital efficiencies and ultimately lower our overall capital spending across the expansions in both Argentina and Quebec. Additionally, we expect to improve the future operating flexibility of these closely located assets, supporting our focus on strengthening a globally integrated production network. The expansion projects in our portfolio in closest proximity to each other are the Fenix and Sal de Vida projects at the same Salardel Hombre Muerto in Argentina, located within 10 kilometers of each other, and the James Bay and Nemaska Lithium projects in Quebec, Canada, with the Whabouchi and mine located roughly 100 kilometers from James Bay.

We expect to deploy $225 million to $325 million of growth capital into Argentina in 2024. This is lower than what would have been spent to bring the Phase 1B 10,000 metric ton carbonate expansion of Fenix online by the second half of 2024 and to achieve first production of Sal de Vida in 2025. Based on what we know today, we expect this to delay production from these projects by up to nine months. We expect to deploy $225 million to $300 million of capital in Canada in 2024, which will primarily be going towards construction of the Nemaska Lithium Hydroxide Facility being developed at Becancour. James Bay permit approvals have been received and the resource definition and engineering has been well progressed. However, we want to take the time to explore potential development efficiencies and future operational flexibility with Whabouchi, given our expectations for both to be vertically integrated with downstream lithium chemical production over time.

Any potential delay at Whabouchi should not impact the expected timeline for Becancour Hydroxide production, which was not expected to require feedstock until 2026. With that said, it means we would like to sell minimal merchant spodumene volumes compared to our prior expectations. We are focused on the optimization and re-phasing of our expansions over the next few months and intend to provide to investors a comprehensive plan for Arcadium Lithium later this year. Additionally, we will look to introduce new sustainability targets for the business, building on the strong profiles of the two legacy companies and our shared commitment to responsible growth. While this is a difficult and unpredictable period in which to go through the integration process, the long-term strategic merits of the transaction have not changed, and we believe will ultimately be proven out over time and through whatever future market cycles we go through.

I’ll now turn the call back to John for questions.

Gilberto Antoniazzi: Great. Thanks Paul. John, you may now begin the Q&A session.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Steve Richardson from Evercore ISI. Please go ahead.

Stephen Richardson: You mentioned it in the script in terms of going to 130 relative to 205 last year, and you mentioned kind of optimization of costs, obviously, you know, high fixed cost mining asset. Could you just talk about that evaluation and why an even lower number wasn’t the right answer considering you know the remaining mine life and the nature of the asset.

Paul Graves: Sure. Steve, we missed the first 10 seconds I think you’re talking about Mt. Cattlin. So I think I got the gist of what you asked. Yeah, look, you know, Mt. Cattlin is an interesting mine, right? I mean, it’s very much toward the end of its mine life. It’s in a phase today that is, frankly, hugely benefiting from historical investment in the mine plan. Essentially, if you go back and look at the data. It went through a period of very low production as it was in a very unproductive scene. And today, it’s in a very productive scene. In fact, while the remaining life of mine, average cost of production is reasonably high on any cost curve. Today, that’s not the case. I mean, actually able to produce a pretty low marginal cost of production now.

It’s not sustainable forever. And at some point, a decision will have to be made as to whether to reinvest in that mine essentially stripping to get to the next phase of low cost, highly productive ore body. Frankly, we slowed it down in order to give ourselves time to see how the market develops. I think we all know that this is a mine that if a decision is ever made to stop it before it reaches the end of mind of life, it’s unlikely to restart again. And so we’re very sensitive to that. We’re not in the business of running assets at a negative operating margin. We don’t expect that to be the case this year. There is an optimal production level and we’ve taken the production down. We could of course take it much lower, but it does become much less efficient once we get below a certain point.

So today at least that’s what we’ve optimized for. We reserve the right to revisit it, either to ramp back up production if prices recover or if prices do fall further and look like they’re not going to recover any further, then we’ll revisit again what the right plan is for Mt. Cattlin.

Stephen Richardson: Helpful. Thank you. I wonder if just as a follow-up, we could talk a little bit about this optimization around sales volumes. Slide 10 is really helpful in terms of breaking out the nature of your contracts and your expected volumes. One from a you know contracting philosophy, do you envision moving for example more of those new carbonate volumes towards the type of multi-year agreements that you have in the hydroxide business and more of which you had legacy Livent over time? Is that something that needs to wait for a better market environment to happen or is that something that you’re actively working with your customers? And just if I could sneak in one more, if you could just talk about your confidence on your floors and exercising those floors in your contracts with your customers, because it’s one question we do get from investors from time to time.

Paul Graves: Yeah, look, I think there’s always going to be a confidence in the floors question. I have very, very high confidence in those floors for a whole bunch of reasons, and I’m seeing no sign at all of the floors being undersposed in today’s market environment. In terms of where we go going forward, look, I think it’s an interesting question. What we’re seeing is actually quite an unexpected evolution of contracting structures. And I think for two years at least now, what we’ve seen within Livent is a desire on the part of customers who are contracting for hydroxide to have more product flexibility. What we expect to happen and what we do see happening today are hydroxide-based contracts that also allow customers to have similar terms around carbonate.

My own view has been for a while that I don’t think lithium carbonate lends itself on its own to the same contract structures for a bunch of reasons, but when done in conjunction with a long-term, you know, higher-sized lithium hydroxide contract, it does make sense. So what we would expect to do is to see more of the carbonate that we produce from Phoenix, today at least, go into the hydroxide network, just as it would have done before. And then to have that supported by contracts that allow a portion of least of that contract to be met in looking carbonate terms. But there’s a lot of the conversations to why customers are moving there and clearly part of this is the battery technologies, greater mid-nickel and LFP adoption by the automotive customers.

The desire to contract in that way with sensible flaws, with ceiling, probably just as strong, if not stronger today than it was a year or two ago. And frankly, the conversations that are happening are not at different closing seasons today than they were a year or two ago. I think one thing that we found is that most of the customers that we’ve engaged with, and maybe self-selecting a little here, tend to have a longer-term view of the market. And so they are more comfortable making longer-term commitments based on what they consider to be the fundamentals over the cycles of lithium pricing. And just as nobody thought $60 was the right price, nobody thinks $10 is the right price either.

Stephen Richardson: Really helpful. Thank you.

Operator: Your next question comes from the line of Glyn from Barrenjoey.

Glyn Lawcock: Paul, good afternoon to you. Paul, I could just ask a little bit about if you could put some more color around what you’re thinking with Canada and the two spodumene operations. Are you talking from a physical perspective that you could maybe combine them more physically or is it just how you’re thinking about that? Thanks.

Paul Graves: Good morning, Glyn. Multiple areas. I think as you know the Nemaska Lithium is not 100% owned by Arcadium. So we have a partner to take into account, but we both agree that it makes as much sense as possible to optimize how we develop an integrated model. And so, you know, there’s a longer-term question of what are the benefits of having two feeds into a single hydroxide plant, the consistency of feed, the reliability of feed. And so we’re certainly looking in the longer term about what can we do with the both of the Whabouchi mine and the James Bay mine such that we’re taking concentrate from both of those and feeding them in the most efficient manner possible into the ultimate downstream hydroxide plot print. That’s a longer term engineering challenge and question for us.

I think in the short term, there’s some relatively basic stuff to be honest. I mean, I don’t think there’s going to be attempts to physically integrate two mines that are that far apart. But I think it is important that we standardize where we can the way that we think about mining. Something as simple as the fleet, as a mining fleet, you know, making sure that we’re not being inefficient with who we contract with, how we think about optimizing staff. I mean, this is a pretty remote part of the world. So how we think about support services as well. I’m not suggesting for one moment that the synergies of the savings there are on the same magnitude that they’re likely to be in Argentina with Fenix and Sal de Vida. But it’s really about being thoughtful and efficient with where we go.

I mean, we’re in a sort of an unusual place and I think it’s probably fair to say that Whabouchi is better permitted, further advanced in some areas, but not as well engineered. James Bay is very well engineered, it’s absolutely ready to go. We don’t have all the permits there yet so we have two different resources at different stages of development and so it’s just a fantastic opportunity to sit down and try to optimize what the development plans are for both of those clients.

Glyn Lawcock: Okay, thanks. And then just as a follow-up just to the last question you talked about contracting et cetera but just when I look at the guidance for volume for ’24 you know you talked about scaling back Mt. Cattlin but what about the carbonate hydroxide business? I mean you’ve got all the others which should be I would have thought ramping up faster. Is there some flex in those numbers that you’ve given us for 24 if prices recover or is that the maximum you think you can achieve this year? Just want to throttle back anything on the chemical side.

Paul Graves: No, we’re absolutely not throttling back on the chemical side. You know, look, I think it’s going to be a learning process for everybody, particularly at Olaroz. The plant-based systems are not as easy and quick to ramp up as I think many people seem to think they are. But Olaroz itself has a bunch of process changes it needs to make or at least upon maintenance issues changes it needs to make in order to continue to manage historical output. I think it’s also important to understand that the output of Olaroz in 2023 was absolutely not representative likely of what Olaroz is able to do in the future. Two important reasons for that, one of which is it chose, and quite rightly so, to maximize technical grade production.

The market in 2023, from a pricing perspective, didn’t really differentiate between the two. And by doing that, their volume, their capabilities go up meaningfully. Looking into today, when you do the same math, the premium the battery grade carbonate will get or is getting over that technical grade product doesn’t justify that decision. And so they’ll be absolutely running the purification circuits more to get more battery grade material. But that de-rays the plant. That’s an unfortunate consequence of that process flow sheet. I think a second factor that benefited them last year, you know, one of the benefits is while you’re constructing Olaroz 2, they were able to take some of the brine concentrated from the Phase 2 ponds and feed it into the Phase 1 operations.

So again, they had a richer yield, they had better output. Again, you can’t do that when you bring Olaroz 2 online. So the best estimates we have today is that we’ll get about 40% of all of Olaroz 2 expansion volumes productive in the calendar year. We’ll obviously be operating at a higher rate than that by the end of the year, but we’re still very much in that early ramp-up phase. No, there’s no thrusting back happens with regard to carbonate production down there in Argentina.

Glyn Lawcock: All right. Thanks for the color, Paul.

Operator: Next question comes from the line of Joel Jackson from BMO. Please go ahead.

Joel Jackson: Again, let me ask a couple of questions one by one. Maybe it’s a short-term question first. So you’ve given some sensitivity to earnings, like you said, around if the price was this much per kilo, that much per kilo across the year. Can you give us a sense of, obviously, you’ve already locked in product for seven months. How much visibility do you have in your order book right now? So how much have you priced through March, through April? Maybe give us a sense of how much is already locked in.

Paul Graves: I mean, it really depends on where we’re looking. I think the majority, certainly all the multi-year agreement on hydroxide is done for the full year. These are take-or-pay. They’re very clear, well-scheduled, well-planned volumes. For all of that, we have very good visibility upon the timing of it. And clearly, I don’t know what the price on some of it is, because some of it is still. It starts from variability to it around floors and ceilings. So there’s certainly opportunities for upside on some of that volume. On the uncommitted volumes, again, you know, reasonable visibility. We go into the qualification process. When we do that, we tend to have a pretty good conversation with the company. We’re qualifying as to what their demand plans are.

So again, we have pretty good visibility on that volume. The lithium carbonate, and that’s a little bit more complicated. I mean, it’s a business that has largely been sold on a month-to-month basis. I have no doubt that the demand is there. It is primarily technical grade product. It is not typically going into or not directly into battery grade applications. And so the technical grade market in a pure sense is smaller and growing slower. And the customers out there that are able to take that material and upgrade it are also relatively small. But we do have some pretty good commitments from some of those customers. Allkem has quite long relationships with the customers in that space and so we have some visibility. Again, market pricing is the big question.

It’s less about whether the volume gets placed. It’s much more about the pricing. On the other specialties, I’m sure you know that they’re largely plants that we thought we sold out in. So we know that material is going out the door, we know it’s going to, and the pricing in that industry tends to, as I said, it’s bilaterally negotiated, but largely negotiated off of the pricing of lithium metal, which is part of the feedstock, which itself tends to be driven by liquid carbonate pricing. So again, volumes we have a lot of visibility to, but the pricing, and by the way, in that there’s margins too because of the way we price it, but we have a little less clarity as to what the pricing is going to be.

Joel Jackson: Okay, then my second question is going to be also on visibility but difference. So open question. So can you comment, you know, one it seems like it’s a lot of blurriness right now in China. People are all relying, industry relying on maybe one or two suppliers of inventory data, other data, everyone’s making decisions and plans and thoughts on what seems to be a blueness of data, so that’s common on that. And then how about all these different pricing indices that we’re seeing now? Contracts based on these indices, it’s fragmenting these indices, there’s not a lot of liquidity on these indices because of exchange. How do we navigate that? Thanks.

Paul Graves: Yeah. Look, I think it’s the most opaque I’ve ever seen in the decade and more than — have been in this industry in various forms. I think there’s a bunch of reasons for that. I think some of it is the supply chains have gotten much more complicated than some of the bigger customers that we have. They’re shifting between different battery technologies. They’re thinking differently about, particularly with the IRA, about manufacturing locations. We see this. We’re typically with a major customer. We’re qualified into multiple cathode producers and we see movement. We see the OEMs directing us into different places, different directions as their supplies change. I think the lepidolite and the African DSO type product, or semi-DSO, has not made it any easier either because I think a lot of that material is going into a somewhat more captive supply chain.

And so visibility as to where it goes, who’s using it, whether it’s even operating and on what operating ways is incredibly difficult today. And we’ll see very definitive statements or observations come out from one very credible observer and maybe 12 hours later a very credible observer counter that with the opposite view. It’s incredibly, incredibly opaque. And I think the indices reflect that. The indices, we’ve got 2 types of indices. We’ve got the price reporting agencies, and then we have these attempts to build some kind of exchange traded or derivative-based contracts. And I think the latter are incredibly immature. We’ve certainly not seen a very successful physical delivery, even though it’s in small volumes, on those contracts because of product, particularly product quality.

I think the material that’s been sat there under those contracts has been the lower grade material that people struggle to use. And so I think that’s caused them some issues in those derivatives. And it’s still an incredibly small, incredibly thin market. I have sympathy for you all because it’s tough enough for us to see what’s going on out there. I promise you I’m not hiding from you a whole bunch of sensitive information that I have. It’s just hard to get information out of China right now.

Operator: Your next question comes from the line of Kate McCutcheon from Citi. Please go ahead.

Kate McCutcheon: Hi. Good evening, Paul. Realized pricing for December seems to be much lower than peers have reported and I realize Cattlin is not a big part of your business but 850 a ton on an SC6 basis. Peers are reporting 1300 and if I look at Olaroz realized pricing for December’s about 3k below the exact indices that I’m looking at. Is there scope to do better with those contracts or is it down to timing of shipments? Because I guess typically Allkem would have realized the top end of spodumene pricing versus peers for example and better than spot at Olaroz. So interested in sort of what’s changed now.