Paul Graves: Yeah, look, as you know, that was a pre-close, that was Allkem. So I have to go back and figure it out. Well, I have had to go back and figure that out myself. But you’re absolutely right. Compared to Allkem ‘s historical performance, I think it’s fair to say Q4 wasn’t necessarily the strongest performance in either of those two areas. I think in the spot concentrate, it’s a relatively small shipment volume, and I think for a whole bunch of reasons, it went out really late in the quarter and really late in the month, and particularly as they also shifted maybe from earlier in the year where they were shipping on an immediate pricing basis or even a lagging pricing basis to an N Plus 1 pricing basis. I think that also accentuated a falling price environment, as it will do.
I think on Olaroz, I think that the challenge with Olaroz, first of all, was just the significant increase in volumes that they were trying to ship. I mean, you’ll notice that they sold significantly more in that quarter than in any others. Again, why they made the decision to do that is again valid at the time, but history can be a harsh judge. Holding volumes back just into a falling price environment doesn’t look great at hindsight. And I think there’s also this question of technical grade. I think as the market weakens, and we’ve seen this before, you know, technical grade product is less in demand. You know, in a tight environment, customers will take any carbonate and they’ll just live with the lower quality. But in a market where there’s less demand, more supply, whichever, then the discount of technical grade tracks just goes up and goes up quite significantly and can create some pretty meaningful short-term disconnects.
So I think that was also part of the challenge that happened in Q4 as well.
Kate McCutcheon: Yeah. Okay. Thanks for the color. And then in Argentina, you called out reducing some of that CapEx spend and pace and you started the nine-month delay there. So should we think about Sal de Vida pushing back there and what are the drivers? Is it just maintaining cash or is there some more issues that projects had delay after delay and CapEx spend revisions time and time again? So just wanting to understand that and how we think about the timing now.
Paul Graves: It’s not a project related decision so much. I think it is two things. I think one of them is clearly, like at this pricing level where the market is today, we’re not going to leverage ourselves and put the balance sheet at risk. And so all projects, you’ll notice, have had to take a step back and say, is there a different way to deliver the conserved spending without negatively impacting the success of the project or creating a capital increase that’s not acceptable to us in this environment. So Sal de Vida is no different to Phase 1B at MDA or those two Canadian projects in that regard. It also creates an opportunity for us. I mean, Sal de Vida and Fenix really are close to each other. And we do share, or we practically, we do even compete for above ground infrastructure and above ground resources, whether that’s contractors, people, energy, water, you name it.
There’s an opportunity there to optimize across those two to improve the way in which we deliver those projects. Our first glance suggests to us that actually we may even be able to reduce the total capital costs across those two projects by taking this moment to take a look at where those efficiencies possibly could be. And it certainly helps that we can optimize labor. Labor is a big resource constraint there. So are suppliers and contractors. So optimizing across those two quite likely to lead to some cost savings but yet it will lead to you know six to nine month delays across those two projects.
Kate McCutcheon: Okay. Got it. Thank you.
Operator: Your next questions come from the line of Chris Kapsch from Loop Capital Markets. Please go ahead.
Chris Kapsch: Yeah, good evening. So my first question is a follow-up really to the opaqueness discussion. Because also what’s been opaque has just been sort of the nature and the magnitude of the de-stocking activity in China. And I’m just wondering about visibility you have around that. I’m asking because it seems like that the gigafactories, for example, are operating at very low rates in China overall. And that’s probably one of the dynamics that’s dragging on pricing, the underutilized gigafactories, perhaps factories that shouldn’t have been capitalized and thought they were going to supply EV companies that maybe shouldn’t have been capitalized. So I’m just wondering, is that feeding into your commercial discussions. And what’s the visibility you have into that de-stocking working its course?
Paul Graves: Yeah, look, we don’t have a huge amount of visibility. I mean I frankly would have expected to see some more announcements of tier 2 or tier 3 battery cell manufacturers closing down, rather than not even just going on hiatus, but actually closing down. And we haven’t seen a lot of that yet. Now, it’s probably a little early still. We see this every time at this time of year, because of the Lunar New Year impact and effect. So we’ll be looking out over the next month or two to see whether we do start to see some build-up. I know there was some commentary from some Australian spodumene guys about maybe, you know, higher levels are going up and so maybe we’re going to start seeing a pick-up again in demand. We don’t see it today.
I would say when it comes to contract discussions, it’s less of an impact to us because we’re not really supplying into that chain. I mean, that piece of the market absolutely impacts the market price that we’re all exposed to, but it’s not really where Arcadian’s been spending its time thinking about customer contracting and embedding ourselves into those supply chains. And that may be another reason why it’s just not quite as visible to us as we would like it to be.
Chris Kapsch: That’s helpful. And then the follow-up was on the discussion around the evolution of your commercial strategy. I’m just curious about what tenants as you evolve the strategy, what tenants are important to you? And you also had said that customers were showing a preference for flexibility around hydroxy versus carbonate. I’m wondering if that should be interpreted as momentum around LFP, you know more globally or is that too much of an extrapolation? Thanks.
Paul Graves: No, look, I think there’s a couple of things going on today. I think one of the obvious things that we see more and more is an IRA focus. Where do we supply and source IRA qualified material, whether that’s carbonate or hydroxide? And as I’m sure you know on hydroxide, we’re reasonably well placed there on carbonate. Argentina today is not technically IRA qualified carbonate unless it’s upgraded into hydroxide. So I think much of the commercial strategy remains taking our asset portfolio and lining it up most closely or as closely as we can with the customers that make the most sense to us. I missed the first part of what you said Chris, you’re asking about.
Chris Kapsch: Well, in your formal comments you talked about evolving your commercial strategy and coming up with an integrated one for the combined company. I’m just wondering what you perceive as important in terms of the tenants. And also, I guess, what you think your customers are going to perceive as important as you partner with them. Thanks.
Paul Graves: Yeah, look, well, I think for us, at least, it’s finding the customers of value, what we do, making sure we can produce the quality materials they demand, right? And that’s a really important question. One thing that I don’t think is going to be an option if you pursue a commercial strategy the way we do is to be indifferent to the quality of the materials that you make. So we have to produce usable, qualified material and that’s less of a challenge in hydroxide, but it’s probably going to take a bit more time and effort in the carbonate space. And I think the second piece of what that does is, you know, I think you’ve always heard historically from a Livent perspective, we’ve always wanted to be closest to the customers that are leading the charge and have the best insights.
And that remains the case because the shift between technologies between high nickel and mid-nickel hydroxide and carbonate, like it’s pretty significant. We certainly see a lot more LFP adoption for sure. And I think while LFP adoption is limited, you know, there’s no doubt that the LFP, the cost of an LFP battery pack has fallen below $100 a kilo, and that’s a bit of a holy grail, frankly, for the OEMs that are trying to drive low-cost vehicles, bring the price of the EV down. And if you’re going to work with your customers, they’re going to need carbonate to service that market. So our strategy continues to evolve. There’s no doubt it’s more complicated. There’s no doubt that having the right partners that are willing to really sit down with you and share their roadmaps is even more important, particularly if we’re going to invest in improving the quality of the material.
It’s not going to be a strategy that’s going to be quick to evolve or quick to change though. It takes time to do this as a combined company.
Chris Kapsch: I appreciate the color.
Operator: Your next question comes from the line of Rob Stein from Macquarie. Please go ahead.
Rob Stein: Thanks for the opportunity. Just two quick ones from me. The roughly 10kt cut of spod from Mt. Cattlin, just on that one, is would it not be better to sell that asset or to explore sales of that asset to existing Australian spodumene producers that may see value upside into the future, given that’s obviously a key lever you’re pulling to manage supply. And then secondly, just on the EBITDA sensitivities that you’ve provided. You know my rough math has prices of about $10,000 ton of LCA. That being you kind of EBITDA breakeven. Is that sort of roughly aligned with your thinking? Just trying to get some bookends on the numbers that you’ve provided for guidance. Thank you.
Paul Graves: Outlook scenarios, not guidance, but when you say $10, are you saying that your projection for the year is $10 a ton or you’re asking me if today’s market is $10 a kilo?
Rob Stein: No, no. No, basically what I’m asking is if I use your guidance and I linearly extrapolate at about $10,000 break even. And I just want to understand from a bookend point of view whether that’s right.
Paul Graves: Yeah, look, it’s a difficult one to answer because our portfolio is not linear, which is why we did this. I think if it was linear we wouldn’t have to do it, but what will happen is that a big chunk of our volume has flows to it. So once you get to when the market price falls to 10, a big chunk of our revenue doesn’t move because the flows are above 10. The second piece of it is how it flows through to a specialty’s business, which as I’m sure you know is a much, much higher price per LCE than the rest of the business. It’s a little bit harder to predict as well. It will flow through, but again, not on a linear basis. That is the hardest question to answer is in a price environment where price goes that low, I don’t know how big the discount for technical grade carbonate will be.
I just don’t know. And so that’s the variable in there. There’s no doubt at $10 a kilo, if the market sits at $10 a kilo for a long period of time, clearly all bets are off as to what we do with regard to capital projects, et cetera, because of those kind of pricing, the EBITDA of the business and the cash flow generation of the business is severely impaired relative to the numbers we put in there. So frankly, it doesn’t really matter to me, at least, whether that’s $9, $8, or $11. When you enter that kind of sustained price environment, it’s a completely different strategy for the organization.
Rob Stein: Thank you. And then, sorry, just to follow up on the spodumene business.
Paul Graves: Yeah, if you’re asking should we sell Mt. Cattlin, Mt. Cattlin’s got, I don’t know, a year’s life left if we run it flat out. Three years if you are willing to invest a decent amount of money on stripping further, maybe further if you’re wanting to take the risk of going underground. I don’t know how attractive an asset that is to a potential buyer. We’ve been merged for less than two months. So as you can imagine, that’s not been a particularly high focus for us. But I don’t know whether that bio exists frankly. Mt. Cattlin, again, with only two or three years lifeline, is never going to be a core part of the long-term strategy of Arcadium Lithium. But that doesn’t mean that it isn’t an important asset for the next two or three years to list off.
Rob Stein: Okay, thank you.
Operator: Your last question comes from the line of Aleksey Yefremov from Key Bank Capital Markets. Please go ahead.
Ryan Weis: Thanks. This is Ryan on for Aleksey. Just two quick ones from me. I wanted to ask you there’s some recent reports of some operations in China seeing some environmental inspections which may cause a shutdown. So I’m not sure if you’ve seen or heard of those reports and what your opinions on that would be. And then secondly, if you could just run us through what the ramp of the new 15KT hydroxide facility in China would look like and one that might reach full run rate. Thanks.
Paul Graves: Sure. Look, I think the environmental, I mean, it’s sort of an annual event now, or maybe more frequent than annual events, but there are some locations that are subject to environmental inspections that don’t go so well and they shut down for a period of time. I’ve heard the same reports. I’ve also heard the complete opposite. This is one of my comments earlier about, you know, 12 hours later somebody equally credible comes out and says the opposite. So I don’t know. Time will tell. I have heard and I have seen some very credible reports and commentary and news that there are certainly some converters that are going to be closed down for longer periods of time than normal three, four, five months, and not necessarily for environmental purposes, though, simply because of the economics that they face, typically they’re not integrated.
I think in terms of our new facility ramping up, the question is qualification. It’s not the plant itself. The plant has already demonstrated that it can run and produce full rate and produce material that we are highly confident will get qualified, that the qualification process though can still take anywhere from three to nine months and so it really depends upon how quickly our customers and their supply chain works its way through that qualification process.
Operator: This concludes our Q&A. I will now turn the call over back to Mr. Daniel Rosen for closing remarks.
Daniel Rosen: That’s all the time we have for the call today, but we will be available following the call to address any additional questions that you may have. Thanks, everyone.
Operator: This concludes the Arcadium Lithium Fourth Quarter 2023 Earnings Release Conference Call. You may now disconnect. Thank you.
