Arcadium Lithium plc (NYSE:ALTM) Q1 2024 Earnings Call Transcript

Arcadium Lithium plc (NYSE:ALTM) Q1 2024 Earnings Call Transcript May 7, 2024

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 First Quarter 2024 Earnings Release Conference Call for Arcadium Lithium. All lines will be placed on listen-only mode throughout the conference. After the speakers’ 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, Mark, and thanks everyone, for joining Arcadium Lithium’s first quarter 2024 earnings call. 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’d 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 upon 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 a reconciliation to the most directly comparable financial measurements 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. Hello, everyone. This marks the first completed quarter for Arcadium Lithium as a combined company following the closing of the Livent-Allkem merger in early January of this year. Since closing, we’ve taken a number of important initial steps to create a truly new company. These changes will allow us to deliver on the significant benefits of the merger that we previously discussed. As a result of multiple integration steps taken, including headcount reductions, procurement renegotiations, and organization realignments, we are on track to achieve our targeted $60 million to $80 million of realized synergies and cost savings in 2024. We began as a new company with solid first quarter results, delivering $109 million in adjusted EBITDA.

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As we will discuss, our multi-year customer relationships and the wide range of high-quality lithium products we produce allow us to reduce the overall volatility of our earnings while maximizing the value per unit of lithium sold. You can see the benefits of these factors in the pricing we achieved in our lithium specialty products businesses and in our combined hydroxide and carbonate average realized pricing in the quarter. We will discuss this more shortly. The company is bringing online significant additional production capacity this year, in line with our previously announced plans, and is expecting a 40% increase in combined lithium hydroxide and carbonate sales volumes for the full year. Beyond the production coming online this year, we will provide additional details on the next phase of our expansion projects that will result in an increase of our total capacity to 170,000 tons on an LCE basis in 2026.

This is over four times our production levels at the end of 2023. I’ll now turn the call over to Gilberto to discuss our first quarter performance.

Gilberto Antoniazzi: Thank you, Paul. Starting on Slide 4, Arcadium reported first quarter revenue of $261 million, adjusted EBITDA of $109 million, and adjusted earnings of $0.06 per diluted share. Volumes in the first quarter were down versus the prior quarter, driven primarily by a decline in spodumene sales due to lower production at Mt. Cattlin in Australia. Prices were slightly higher across most lithium products versus the prior quarter due to an initial improvement in market conditions, although we’re down compared to the beginning of 2023. Despite a weaker price environment compared to most of last year, the company achieved an adjusted EBITDA margin of 42%, demonstrating our leading low-cost position in Argentina and the earnings power of our business at various stages of the market cycle.

Turning to Slide 5, we provide further detail on first quarter performance from our key lithium product groups. Lithium hydroxide and lithium carbonate together make up the core of our business, comprising roughly three-quarters of our total revenue. On a combined product ton basis, we sold roughly 9,300 metric tons at an average realized price of $20,500 per metric ton. We believe this is higher than we would have been achieved had we pursued a fully spot market-based sales strategy. We benefit from both floors and fixed price in place on a portion of our lithium hydroxide volumes as well as a lagging price index effect on some legacy carbonate contracts. As a reminder, we have multi-year agreements all with pricing floors with a select group of core customers, roughly two-thirds of our total hydroxide volumes.

In addition to pricing floors, there are also firm annual volume commitments over the life of the agreements. Other factors impacting our overall realized pricing, both positively and negatively, are the portion of technical-grade carbonate volumes that you sell, which are typically contracted lower price versus battery-grade material, and the lag of as much as a quarter on a subset of our carbonate and hydroxide volumes, which are priced against market reference indices. We are pleased with the performance of our production assets in the quarter with the low cost at our carbonate operations at both Fénix and Olaroz in Argentina helping to drive strong margin performance. The operating costs of the two remain fairly consistent with prior-year levels with no inputs driving material change to begin the year.

Butyllithium represents the substantial majority of the revenue in our other lithium specialty business, which have a wide ranging product applications. Most of these products, including butyllithium and high purity metal, are vertically integrated within our operations and are based on lithium metal, which is made from very high purity lithium chloride produced at Fénix. While representing a smaller portion of overall volumes, you can see that these businesses combine to deliver high value for their underlying lithium content. Quarterly volumes in this business tend to stay fairly consistent. And while pricing did come down on a year-over-year basis, it did not do so by the same magnitude as some of our other products. This still helps to reduce the overall volatility in our portfolio over time.

Finally, for spodumene, we sold roughly 30,000 dry metric tons in the quarter, all out of our Mt. Cattlin operation in Western Australia at an average grade of 5.4%. This was lower than quarterly volumes throughout 2023 and is due to the reduced mining and production plan for the year that we discussed on our fourth quarter earnings call. We achieved average realized pricing of $920 per dry metric tonight on an SC6 equivalent basis, which is up versus Q4, but is still down meaningfully versus the rest of 2023. The cash operating cost of production at Mt. Cattlin in the quarter was just under $700 per metric ton. I will now turn the call back to Paul.

Paul Graves: Thank you, Gilberto. I’d like to provide some observations on what we see in the broader market for lithium, as set out on Slide 6. The year began with a notably bearish tone around lithium and energy storage demand from pretty much everyone, and this was driven in part by negative headlines from various OEMs, especially those focused on the U.S. market, as well as the typical seasonal slowdown seen leading into the Lunar New Year holiday. Now that we’re through the first quarter, we can say that market demand for lithium was actually quite strong, and certainly not reflective of some of the doomsday scenarios posted in the first few months of the year. Global EV sales were up over 20% year-to-date through the first quarter.

To keep this in perspective and to make sure we’re talking in numbers that reflect actual market size and not just growth percentages, global EVs sold in the first quarter of 2024 were equivalent to the total amount of EVs sold in all of 2020, according to data from the IEA. The story in China, where so much of global lithium and energy storage demand continues to reside, was even stronger. First quarter sales of EVs in China were around 2 million units, that’s up 32% from the prior year, and March marked the second consecutive month with penetration rates above 30%. Expectations for EV sales are even higher in the second quarter, spurred by new economic incentives announced by the Chinese government in April and evidenced at the recent Beijing Auto Show, which featured 287 new energy vehicles, representing over 80% of all the vehicles on display.

Some industry analysts have opted to lower near-term demand forecasts, accounting for higher recent plug-in hybrid EV versus battery EV sales mix and some other data points. However, if you’re going to reduce lithium demand due to lower BEV sales in this scenario, you also need to account for the higher demand for more PHEV sales, where average battery sizes are in fact increasing. From analyzing multiple demand forecasts, we can see that BEV sales globally in ’24 and ’25 are indeed down compared to forecasts from a year ago, on average approximately 20% lower for these two years. But, and this is an important point, demand from PHEVs and non-automotive demands such as stationary storage largely offsets this. On a total gigawatt-hour basis, our analysis suggests that total demand is around 5% lower than previous forecasts in both 2024 and 2025.

But by 2026, demand is no different or even slightly higher than it was a year ago. Putting this into more tangible terms, all the industry forecasts we’ve been able to look at continue to suggest that 2030 lithium demand will be around three times that of 2023, which is almost exactly what we were forecasting a year ago. Turning back to the current market, in the last few weeks, we’ve seen encouraging signs of a lithium price recovery with prices increasing from what appears to be the bottom of the current cycle. With the market having found price support well above the floor of any historical lithium cycle, it seems there’s been a fundamental shift in our industry with respect to prices that incentivize sustainable long-term reinvestment.

Perhaps the most challenging part of analyzing the lithium market is getting a clear understanding of what is happening on the supply side. The lithium supply growth that is surprised to the upside in recent years has been almost entirely high-cost material from spodumene out of Africa, plus lepidolite in China, which would suggest a high degree of confidence in sustainably higher future prices. The development of these assets was likely encouraged by the high lithium prices seen in the last market run-up and supported by the China battery supply chain. But the challenge of analyzing the supply side of our industry is especially seen in independent research, which continues, in our opinion, to lag the reality of the market in its forecasting.

Most analysts that publish lithium supply models seem to struggle to keep their models up to date. As an example, when we look at the output forecasts from some of the leading market analysts, and we compare their volumes with a number of producers that have actually put specific volume targets out themselves for ’24 and ’25, we repeatedly see that they overstate the numbers compared to these public forecasts. And this is before we even get into the fraught debate of LCEs versus battery-qualified material. So, moving on to Slide 7, we’re providing a few Arcadium-specific updates for 2024. The company continues bringing online its recently completed expansions. For lithium carbonate in Argentina, the first 10,000 metric ton expansion at Fénix is fully commissioned and is now producing lithium carbonate at close to nameplate rates.

The 25,000 metric ton expansion at Olaroz has successfully produced its first carbonate and is on track to increase volumes closer to nameplate capacity as the year progresses, which is what we would expect with a conventional pond-based process. Turning to lithium hydroxide, the new 5,000 metric ton unit in Bessemer City and the 15,000 metric ton unit at a new site in Zhejiang, China, are undergoing qualification with key customers. They are both expected to be producing commercial volumes in 2024 and will produce at full capacity as lithium carbonate production reaches the levels needed to feed them. Putting this all together, the company remains on track to achieve a 40% increase in combined lithium hydroxide and lithium carbonate sales volumes for the full year with growth weighted towards the second half of 2024.

Arcadium Lithium also remains on track to realize planned synergies and cost savings totaling $60 million to $80 million in 2024. The company has already taken meaningful immediate steps to lower costs, including reducing its global workforce by approximately 11% across all regions and functions in the first quarter and cutting back on third-party spending. Most of these savings are expected to be realized in the remaining three quarters of the year as some of these early actions begin to take effect. We will continue to keep you informed on our progress in these efforts, including short-term and longer-term initiatives. The company has made no changes to the full year 2024 outlook scenarios or other select financial items that were provided last quarter, as shown on Slide 8.

As a reminder, we provide this framework to understand how changes in market prices may impact the financial performance of Arcadium Lithium in 2024. These scenarios, which should not be construed as guidance, were selected to allow investors to assess our potential earnings at a range of market prices while overlaying our existing commercial agreements with their specific pricing mechanisms. On Slide 9, I want to turn our focus to the growth our company is capable of achieving beyond 2024 and where the focus of our investment will be over the next three years. We slowed the pace of our planned capital spending compared to initial expectations in light of a lower price environment, as well as to provide the opportunity to maximize potential synergies and derisk execution.

However, we continue to believe we have a world-class portfolio of operating and development assets and that we are in a much better position to grow as a combined company. We plan to provide a comprehensive update on our growth plans at an Investor Day in September of this year, so please stay tuned for further information on this. By the end of 2026, we expect to increase our total production capacity to nearly 170,000 LCEs via multiple ongoing expansions. In Argentina, we’re progressing an additional 10,000 metric tons of lithium carbonate capacity at Fénix called Phase 1B, and 15,000 metric tons of carbonate capacity at Sal de Vida, two projects that are located very close to each other. Both of these are expected to reach mechanical completion by the end of 2025 and generate commercial sales in 2026.

In Canada, we continue to construct 32,000 metric tons of fully integrated spodumene to lithium hydroxide production at Nemaska Lithium, and we’re looking to commence work to build up to 40,000 metric tons LCEs of spodumene concentrate from Galaxy, formerly known as the James Bay asset. Both of these projects should be mechanically complete in 2026. The four main projects we’re deploying growth CapEx towards over the next three years should already be familiar to our investors. We are still in the process of fully standardizing methodologies between the various projects, allowing us to speak consistently about the capital and operating cost assumptions across our development portfolio. But at this point, we estimate it will require roughly $1.6 billion in CapEx from 2024 to 2026 to deliver these projects to mechanical completion.

We previously provided growth capital guidance of $450 million to $625 million for 2024, and we expect to spend roughly similar levels in the following two years. With respect to 2024 CapEx, we expect quarterly spending the rest of this year to be below first quarter levels as the slowdown decisions previously announced start to take effect. Our confidence in pursuing these attractive expansion projects is supported by confidence in our ability to fund them. We believe we are in a strong position to fund the capital requirements through multiple different sources of financing and we have the ability to adapt these plans as the market dictates. The main source of funding for these expansions will come from free cash flow generation, which itself will be strengthened by higher sales volumes.

We’re about to realize the benefit of a combined 35,000 metric tons of lithium carbonate coming online this year, with the CapEx for this growth already complete. We also realize additional cash flow as the next series of expansions come online in phases in the coming years. Beyond this, the company has over $400 million in cash on our balance sheet, a $500 million undrawn revolving credit facility, which can be expanded up to $700 million, and the opportunity to pursue other financing options, such as government loans and grants, customer prepayments, asset level financings and/or strategic partnerships. There is no doubt that post-merger, we are a stronger and more resilient company, and we remain confident investing in these highly attractive assets throughout market cycles, which will lead to significant future growth.

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

Daniel Rosen: Thank you, Paul. Mark, 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 David Deckelbaum from TD Cowen. Please go ahead.

David Deckelbaum: Thanks for the time this afternoon, Paul and Gilberto. Thanks for taking my questions. Look, my first one is really — I love the rename and rebranding around Galaxy. I’m curious as you look for nameplate to come online at some point in ’26, is the intention right now to be a sort of specs spodumene seller into the market or what are your plans to vertically integrate that asset vis-a-vis Bécancour or working with a third party?

Paul Graves: Yeah, good question. We, as you know, our business model is to be in the lithium carbonate and hydroxide and other specialty lithium salts business, not so much to be in the spodumene business. But for a whole bunch of reasons, the expectation and the plan is absolutely to integrate James Bay downstream in the future. We’re looking at Bécancour as a location. We’re looking at building potentially in Bessemer City, where we have existing operations. And we’re looking at other third-party locations, including potentially other parts of Canada. I think the key drivers of this, frankly, will be customers and what customers are looking for from us. And also we’re increasingly seeing certain parts of North America being willing to provide incentives, financing incentive, tax incentives to encourage us to build hydroxide capability in different parts of North America.

So, we will continue to explore those, and when we have a decision, we will obviously communicate that. I would say that, we’re fine, by the way, selling spodumene concentrate for a few years while we develop these resources. In fact, it’s a pretty good way to fund that asset will be through cash generated from Galaxy-generated spodumene concentrate. But in the longer term, we absolutely intend to fully integrate downstream.

David Deckelbaum: Thanks, Paul. And then my follow-up is just as you think about the second capacity expansion in Argentina, I’m curious, one, as you’ve delayed this, do you see any sort of residual risk to delaying the capital spend there and trying to bring things on six months to 12 months later? Is there a risk to sort of getting the completion crew back to finish the job at this point? And then, in conjunction with that, do you anticipate putting more of these Fénix expansion contract — volumes onto fixed price agreements?

Paul Graves: So, two questions, I guess, there, but I think in terms of both Sal de Vida and the Fénix MDA expansion, slowing down actually helped us with execution. I mean, there’s no doubt there’s a shortage of qualified and capable contractors and trying to sort of compete, if you will, not only with each other but also others in the region. It’s not that easy to get the resources you need. So, the ability to combine the two and put the project execution onto a more integrated path is actually probably going to help us in many ways. Many of the synergies we talk about for construction down there we’re already starting to see. It also allows us — we’re looking pretty closely at using some of the construction done at Sal de Vida around the ponds, which are largely complete to generate additional brine to feed into Fénix as well, which will help drive more volumes either in carbonate or chloride as we develop those assets.

So, I don’t see — I certainly don’t see a difficulty, if you will, in construction from slowing them down. And I certainly think there are opportunities, and so far, it suggests there’s opportunities to save total capital from doing that. In terms of contracting strategies, we’ve always said, I think, generally speaking, carbonate in and of its own right is pretty difficult to put onto some of these contracts that we talk about, but carbonate and hydroxide, in what I’ll call kind of paired contracts where customers get optionality between those two, is capable of being contracting that way. And so, we will absolutely continue to look at both carbonate and hydroxide kind of, if you will, a sort of a paired offering to customers in those contract structures.

And we’re getting a lot of traction with customers who has their own technology, battery technology, roadmaps chain, are really interested in having that optionality, and bringing those two online will only help us with that.

Operator: Your next question comes from the line of Robert Stein from Macquarie. Please go ahead.

Robert Stein: Hi. Just wondering regarding the EBITDA to adjusted EBITDA and the restructuring and other charges, you’ve provided a breakdown of integration costs of the $67 million. Just wondering what are we expecting that to be next quarter and are we seeing an end of that integration spend? And similarly, does that include any study cost changes relating to Mt. Cattlin or any other assets that we could potentially see going forward? Thank you.

Paul Graves: Gilberto, do you want to answer that one?

Gilberto Antoniazzi: Yeah. So, the cost that you see in the first quarter is, I would say, it’s pretty much, I’d say, close to 90%, 85% of the cost you’re going to see for the year. As Paul highlighted we took some actions in terms — not some, in terms of integration to accelerate integration, but also the reduction in force that contributed to the higher charges. So, we’re not expecting at all the same level of charges that we had in the first quarter for the remaining three quarters of the year would be very — much smaller minimum compared to the first quarter of the year.

Robert Stein: Thank you. And then as a follow-up, the currency gains and losses, are we expecting that to be a constant, I guess, addition to adjusted EBITDA going forward given the currency moves? I mean, it’s hard to forecast currencies, but what’s your expectation going forward?

Gilberto Antoniazzi: Well, we don’t actually. It’s hard to — as you said, it’s really hard to forecast and expect. So, we’re not necessarily counting on that. It’s going to be a recurring gain. So, again, there are certain things that we hedge, but this element that we had, the gain is actually an element that we cannot hedge, it’s related to our cash balances. But again, we don’t have the ability to forecast the effect. We’re not assuming we’re going to have those gains recurring in the next three quarters.

Paul Graves: As Gilberto said, look, part of this is driven by cash balances. And as those cash balances come down, we won’t have the same remeasurement issues with some of those cash balances. So, we don’t expect it to be the same magnitude again. Who knows, we’re exposed to the peso, exposed to other currencies. So, there’s always a chance of big swings, but we’re not expecting them to be this magnitude all the time.

Operator: Your next question comes from the line of Kevin McCarthy from Vertical Research Partners. Please go ahead.

Kevin McCarthy: Yes, good evening, and thank you. Paul, I appreciate the detail on the average selling prices that you show on Slide 5. Can you refresh us on how much of your pricing function is essentially floating versus fixed? And then secondly, if market prices were to trend flat from today’s level, how would that $20,500 per metric ton number that you show trend moving forward? Do you think that would likewise trend flat, or is there upward or downward tension there related to your contracts? Any color there would be helpful.

Paul Graves: Sure. So, about two-thirds of our hydroxide volumes are covered by these contracts. Pretty much everything else floats in some way shape or form, either against an index on monthly price or quarterly price renegotiations depending on the business. If the market prices stay roughly where they are as the year goes ahead, we would expect that average price to slightly trend downwards, largely because most of the new volume we have coming on is going to come on at those market prices. And the market price today is below $20,500. So just a simple averaging will drive that down. The contract structures and the contract prices are unlikely to change if market pricing stays where it is. Frankly, as I think we’ve disclosed in the past, because the floors or the fixed prices have kicked in at today’s market prices, and we don’t expect those to be any different during the year.

But as I said, as we bring more market volume — market-based priced volumes online, we would expect that price to tick back down. Now, the flip to that is, if the market price starts to go up, more of the volume is actually exposed to increases, because as the market price moves up through those floors and above them, then those floor price structures all start to become market priced. And so, there’s a reasonable scenario where prices are not massively further north of where the market is today that the majority of our portfolio will actually price with the market at that point in time. And unless we get really lucky, we’re a long way from hitting the ceilings in those contracts. So, would expect most of the portfolio to therefore price on a floating basis.

Kevin McCarthy: Thank you for that. And then, as a follow-up, I want to ask about your capital budget versus the D&A flow through. Looks like you took the capital budget down $100 million to $125 million. I didn’t see a lot of change on the production guidance, but perhaps I missed something. So maybe you can talk about why specifically that’s coming down? And on the D&A side, Gilberto, I think you guided to $145 million last quarter, looks like 1Q is quite small relative to that at $17 million. Maybe could just talk about how you see that trending?

Paul Graves: Sure. On the capital side, I think — sorry. On the capital side, the question is really straightforward. The spending on capital on growth projects can have multiple quarter lags as to when commitments are made and when payments are made. And so decisions to slow down capital spending don’t instantly hit your spending numbers. So, Q1 was absolutely a lot of spending of commitments made last year by both companies as independent companies. So, we expect to see that spending trend downwards as the year goes on as we move to these revised execution plans that we have in place. And that’s really all you’re seeing in that. Gilberto, if you want to talk on D&A?

Gilberto Antoniazzi: Yeah, on D&A, the way we start amortizing the assets is when they really come, what we call, commercial production that we’re selling the products and we’re expecting those assets for Olaroz and Fénix, when they two start commercially, volumes be sold, as we said, late Q2, early Q3. So, as a result of that you’re going to start seeing the depreciation picking up throughout the second half of the year already Q3 — in Q2 as well. So that’s primarily the difference.

Daniel Rosen: Yeah. And Kevin, just to clarify, we were referring to growth CapEx in our slide. It was excluding the $100 million to $125 million of maintenance CapEx that we guided. So, we need to include that as well.

Operator: Your next question comes from the line of John Roberts from Mizuho. Please go ahead.

John Roberts: Thank you. The percent of the volume under contract goes down as 2024 progresses. Is it too early to say if it resets back up in early 2025?

Paul Graves: No, it’s not too early. Some of the volume that we have coming online this year, we’ve allowed it to flow with market, partly because of the state of the market, but partly because we have higher commitments under some of these contracts starting next year. So there’s a natural, already contracted step up in the amount of volume that will be under these contracts starting next year. Again, that’s not new contracts. They’re actually existing ones that have step-ups in them. But again, as we bring more volume on, you’re going to see this sort of step process happen quite frequently, where we will bring volume on in advance of contract commitments in that sort of stop period. We will allow it to float with the market, and then that volume will then get absorbed into some of those contractual commitments looking forward.

So, it’ll move around over time. I would say, as we have a higher carbonate mix though, which we will, as a combined company, than you will have seen Livent have in the past, then you are going to see less of the volume under these contracts on a percentage basis, simply because, as I said before, most of the carbonate does not — is not sold on that basis.

John Roberts: And then Albemarle began conducting reverse auctions for lithium during the quarter. Do you need to do something similar, or what they’re doing benefits the industry overall, so there’s no need for others to follow?

Paul Graves: Yeah. Look, I think it’s all everybody’s testing out what the state of the market is and how it views. I’m not particularly close to what Albemarle did. I know there’s a bunch of people been doing this in spot concentrate, and I think there’s certainly an opportunity in some of the more commoditized parts of our market like some of the technical-grade carbonate to explore the market. I think it really reflects a lack of confidence that most people have in some of these indexes and the way the indices don’t really reflect true market conditions in large parts of time, both when they’re really high and when they’re really low. And so, I think we’re all trying to kind of get a handle on what the real market is. It’s a more diverse market today than it was a couple of years ago, which is you would expect as it grows.

There’s more buyers in the market. There’s more people kind of speculate, frankly, around certain parts of the market, especially in some of the pieces of the carbonate market. So I really do think as an industry, we’re all trying to understand what is the real environment out there, pricing environment, and more importantly, demand environment. So I think we’ll all be, at various points in time, testing out different ways to have better price and volume and demand discovery.

Operator: Your next question comes from the line of Stephen Richardson from Evercore. Please go ahead.

Stephen Richardson: Hi. Thanks. Paul, now that you’ve had some time with the assets and through the integration, could you give us your latest thoughts on — you produce a lot of really high-quality carbonate at Fénix and maybe some lower-grade elsewhere in Argentina? And could you talk about it always seemed to us like there was an opportunity there to maybe feed some of your hydroxide plants with some of the lower grade and sell some of the higher grade? And I know that’s probably easier on paper than it is in practice. But I was wondering if you get your thoughts on that.

Paul Graves: Yeah, look, you’re absolutely right. It’s not that difficult to do in many ways. It just takes time, right? So, we’re definitely doing and exploring that. As you know, we run multiple hydroxide lines fed from carbonate from Fénix, and replacing that with carbonate from Olaroz is absolutely a core part of our strategy. But every line and every customer will require prequalification. We will need to make sure that we’re getting a version of carbonate from Olaroz that fits the needs, because, obviously, we can change the parameters at Olaroz, too. So, it’s a little more complicated in terms of figuring out what impurities we can and we cannot handle, and it varies by hydroxide lines. The newer hydroxide lines have a much wider tolerance of what they can use than the old ones.

But it’s a real opportunity, I mean, because — look, you’re spot on. I mean, you didn’t ask the question, but if you look in the first quarter, the price differential between selling technical-grade or selling battery-grade carbonate, for us at least, was really, really wide. And so, to be able to tap into sell more battery-grade, which we don’t have a lot of, because it’s all produced by — most of it anyway, produced by Fénix, the legacy Livent asset, and consume more of the technical-grade. It’s a real synergy opportunity. I don’t expect to see a lot of that happen this year because of the time it takes, but looking into next year, absolutely something that we are expecting to be doing.

Stephen Richardson: Appreciate that. I guess it’s something we’ll look forward to discuss at the Analyst Day later in the year. Other question just on — and maybe I know there’s a lot of moving parts in the financials here, but Gilberto maybe, on a pro forma basis, I know we have legacy Livent financials at year-end, and then now the pro forma Q1. But considering if I just look at the $20,000 a ton realized price, were you cash flow neutral sequentially or was there a cash burn on a pro forma basis? And again, I know there’s a lot of restructuring as well, but just wondering, is the program self-funded at $20,000 a ton, I guess, is the simple question.

Gilberto Antoniazzi: Yeah. I can answer — the simple answer to the question is the program is self-funded at $20,000, or even honestly, we need a little bit less than that as well. So, we’re not really concerned about that right now.

Operator: Your next question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.

Joel Jackson: Actually going to follow-up on that question. Hey, everyone. I thought you disclosed or gave disclosure that pro forma cash was about $1 billion when the company merged. And now I think you ended March quarter with around $0.5 billion free — $0.5 billion of cash. So, it seems like cash dropped at $0.5 billion in the March quarter. Could you please elaborate on that?

Gilberto Antoniazzi: So, I’ll take that, Paul. Joel, it’s — yeah, honestly, that’s a little more complicated now because we’re having Nemaska on those numbers, right? And when I look at the overall cash position that Arcadium, excluding Nemaska has, I know it shows $472 million in 10-Q. But after you do some, what I call, adjustments in cash that is restricted, this number is actually close to — it’s $65 million higher than what you have there just for Arcadium side. So, we — but, yes, in the first quarter, we have important spending. Again, a lot of driven by transaction cost integration, severance. We also have some big tax payments that we have done in the first quarter, and we have made an investment in ILiAD that also was a cash outflow about $30 million. So again, first quarter was a very big cash outflow quarter that is not going to be repeated in the next three quarters of the year. So, don’t take that as a proxy for the remainder of the year.

Paul Graves: I think, Joel, I think you did a bit of rounding there, which makes it sound worse than it was. It wasn’t $1 billion. I don’t believe it was $800-million-and-change. And as Gilberto says, our actual effective cash balance, which we can talk to you offline about why this happens, is north of $500 million. But there was certainly meaningful cash burn and as a result of all the costs of closing the merger and integration costs, all that stuff in Q1, which, I said, absolutely not going to be repeated through the rest of the year.

Joel Jackson: Okay. Thanks for that color. I’ll ask my second question. And looking at some of your slides, on CapEx over the next years and expansion, so — and this is sort of — I know how Livent would talk about projects. So, you talk about 170,000 tons capacity at the end of ’26, which, the first part of the question is, that’s obviously not production or sales volume. Could you talk about if you do hit all these targets, what would ’26 and ’27 production volume sales look like? And then, just on the second part of that question would be, your ’25 and ’26 CapEx guidance you gave on Slide 10, could you break that down by the projects or maybe by Canada, Argentina as you’ve done in your prior deck? Thank you.

Paul Graves: Yeah. So, let me — it’s a little early for me to give you ’26 numbers, because I think you can kind of see this year as we bring on Fénix and Olaroz 2, you can delay or accelerate production levels by two, three, four months easily, and you can go straight to nameplate or you can have a bit of a slower ramp depending on time of year, conditions, et cetera. So, we’re going to have at the end of 2025 almost exactly the same as we at the end of 2023 where we have Sal de Vida, which is analogous to Olaroz, a pond-based conventional process complete and now producing, that will ramp at a different rate to the Fénix expansion completed at the same time, which tends to go immediately to full nameplate production. So, it’s a little difficult for me to answer that one as — I’ll be just misleading, frankly.

And so, I’m going to reserve the right to tell you the numbers on that one later. I will tell you, though, those nameplate production numbers, that — we don’t have a nameplate, and I think we’re going to run them at 70% of nameplate. That’s kind of what the future production level should be at once they’re all up and running. So certainly, once we get into 2027, probably still some ramping up or qualification delays happening with Bécancour. But everything else will pretty much be running at those numbers in 2027 for sure. I’m sorry. Your second question was on what? Sorry, Joel.

Joel Jackson: I appreciate it. And the second question just is on [Technical Difficulty] gave for — in ’25 and ’26 on Slide 10, $600 million in 2025, $475 million in ’26 for growth CapEx, can you break that down by project or like you’ve done before Canada versus Argentina? Thank you.

Paul Graves: Yeah. So, we’re going to do that in September when we do an Investor Day. And the reason we’re not doing it today is not because we don’t know the answer, but, there’s different ways to talk about capital spending. And what we find is that the way Allkem spoke about it and the way Livent spoke about it were both correct, but were different. So, we’re doing a bit of work today to standardize those processes and make sure that we can talk about everything in a consistent manner. So, we’ll ask for a little patience on your part. It’s not that long till September, so we will certainly be disclosing more of that detail and a lot more granular detail project by project at that point.

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

Kate McCutcheon: Hey. Good morning, Paul, and evening, Gilberto. Funding for your $1.6 billion over the next few years, the development of the Canadian assets, are you still looking at being able to do a prepayment deal there similar to the GM deal, for example? Is the appetite still there from the OEMs to do that? And I guess how are you thinking around funding strategies? [indiscernible] you mentioned that you had the facility available.

Paul Graves: Yeah. Look, I think that customers have a different view depending on two primary variables. Variable number one is what do they need, and variable number two is where is it. So, if it’s IRA-qualified lithium hydroxide, then yes, there’s appetite for prepayments, for long-term commitments, for, really, frankly, structures that look very much like the ones we have in place today. If it’s not IRA-qualified and it’s — whether it’s spodumene or carbonate, far less interest in customer funding, whether it’s prepayments or other approaches. Now — and again, it varies by potential customer. There’s no doubt that we could run a list of today of half a dozen to 10 customers that are very, very providing capital in return for security of future supply.

And I can give you just a longer list of customers that aren’t pursuing that strategy as well. So, it’s definitely there. I wouldn’t describe it as a market norm, and I would describe it as linked to very specific assets, projects and customer requirements.

Kate McCutcheon: Yeah. So, on funding that, what is your base case for that [$1.6 million] (ph) over the next few years — $1.6 billion?

Paul Graves: Yeah. Look, we have some, as you know, prepayments already in place that will contribute towards that funding requirement. We explore — it’s difficult to sit here today and say we are going to exactly do funding in a prepayment or from a customer or from other sources. We have some pretty active and detailed conversations going on today with government bodies that are willing to provide funding, both low cost of interest-free loans, forgivable loans, but also just grants, outright grants. So, that’s a pretty active conversation going on. We also have conversations with customers, too, about what they’re willing to do and where they’re willing to invest capital. So, again, as and when we have that funding arranged and in place, we will be disclosing it.

Kate McCutcheon: Okay. Good. And then, my follow-up question, Mt. Cattlin doesn’t feature in your outlook to 2026. Just remind me when are you expecting that asset to run to? And does the subsequent cutback require a different price than what we’ve got today?

Paul Graves: Yeah. Look, the answer is very different depending on what future pricing is. Today, we’re seeing spot concentrate in the second quarter moving at about $1,200 maybe a bit more per ton on an SC6 basis, so 20%, 25% higher than we saw in Q1, which is obviously good news for Mt. Cattlin, but it’s not high enough to justify the significant capital that will be needed to move to the next phase of mining at Mt. Cattlin. We hope to and we’re hoping to see the pricing increase and I think it will be good news for everybody if we can do that. But as things stand today at least, it’s quite likely that we will not be — at today’s pricing environment, Mt. Cattlin is unlikely to be operating when the current mining plan ends, which is sometime towards the end of 2025 into early 2026.

And so that’s really why we leave it out of these numbers because today, we don’t have any visibility or any confidence at today’s prices that Mt. Cattlin will be expanded beyond where it is today.

Operator: Your next question comes from the line of Christopher Parkinson from Wolfe Research. Please go ahead.

Harris Fein: Great. Thanks. This is Harris Fein on for Chris. So, for a good portion of the quarter, and I believe still today, hydroxide is trading at a little bit of a discount to carbonate, I guess, just due to differences in EV demand by region. Now that you have a lot more carbonate capacity coming online, has your thought process changed on how you’d like to allocate those tons? Or is there any more flexibility in how you can fully optimize the value per ton that you’re realizing?

Paul Graves: So, look, first on your point, I struggle with the statement that hydroxide is trading at a discount to lithium carbonate. There’s no doubt the indices point to that data. You’re absolutely right, but that’s not the case in our portfolio. I can assure you that the hydroxide price in our portfolio is not only not at a discount to carbonate, it’s a significant premium to carbonate. But that probably reflects that it’s qualified material, qualified into supply chains and largely outside China. So, while ever we see that premium and that customer commitment for ex China lithium hydroxide, frankly, we’re going to continue to pursue it. We do like the fact, especially in China, that we have that flexibility to not sell the hydroxide if we don’t want to.

We don’t have to run those plants, because the way they’re structured, they don’t carry a large fixed cost and they’re not particularly capital intensive to us. So, we can choose to sell carbonate in that place and we will as we need to. We’ll meet the customer commitments. But frankly, the China assets are swing assets to allow us to take advantage of what customers need in China, but also price opportunities and the commitment will continue to be to maximize value per LCE in that carbonate and hydroxide chain.

Harris Fein: And for my follow-up, I don’t think we touched on this yet. Just do you — what’s your view of where inventory stand right now at the cathode producer level? And are you seeing any signs of restocking right now?

Paul Graves: So, I think it’s really interesting question, because one of the characteristics of today’s market in my view is almost no lithium held in the supply chain, but no great appetite to rebuild inventory at this point in time. I think there were two reasons for that. I think the two place — the places where you build inventory is really in carbonate. You’re not building a lot of hydroxide inventory for the long run just because of the nature of lithium hydroxide. And we’ve certainly seen intermediates step in and be willing to hold that carbonate inventory, [GFEX] (ph) and others, there’s certainly some carbonate being held there, which has given some of the supply chain more confidence that there is some slack in the system for them if they need it.

I think the second bigger factor, though, is, the cathode producers don’t really have yet the visibility, therefore, the confidence they need as to what the technology roadmap looks like for the next 12 to 18 months for many of their customers. There’s sort of three different flavors out there. There’s LFP, there’s high-nickel, and there’s mid-nickel. And you’ve got sort of — LFP is obviously predominantly lithium carbonate, high-nickel is all lithium hydroxide, but in the middle there, they can kind of swing in different directions. And we’re tending to find that there’s just not a lot of confidence to build in advance because there’s so much variability today in that OEM to battery to cathode part of the supply chain as to exactly what’s going to be needed.

So, I think we need more clarity there first. And I think when that clarity starts to appear, then we’ll get the restocking that everybody is looking for.

Operator: Your next question comes from the line of Pavel Molchanov from Raymond James. Please go ahead.

Pavel Molchanov: Thanks for taking the question. Two regulatory questions. First one on Argentina. You had the press release in March about the court ruling. I know it does not affect any existing operations, but could it affect any future expansion plans?

Paul Graves: Look, I think Argentina has got lots of moving pieces to it. I think there’s a very low likelihood that it impacts future expansion plans, too, because most of what we do in expansion plans is part of existing operations being expanded rather completely new environmental permits that have to be issued. I think there’s a lot of debate about how enforceable that ruling is or was, and there’s a lot of changes being made by the province of Catamarca by the political authorities to, if you will, fix that ruling. It requires them to take certain actions and require certain things, which they frankly largely do anyway and will do. They’re very focused on making sure that investment continues to happen. I mean, particularly under this administration, with less funding going from the federal government into the provinces, direct investment by companies such as us is even more important to provinces like Catamarca and Salta and Jujuy.

So, we think it’s a very low risk that it will impact the expansion plans.

Pavel Molchanov: Okay. Kind of a broader question about the industry. We have seen some headlines about the Chinese lithium players looking to acquire more and more overseas assets. How are you looking at kind of at that whole dynamic?

Paul Graves: Yeah. It’s a difficult one. I think you know as well as anyone that, being a Chinese buyer in some key lithium jurisdictions is not easy. You’re not going to be able to buy in the US, not going to be able to buy in Canada, very low likelihood that you can buy much in Australia, too. So, there aren’t many places for them to go. Argentina, we’ve seen them going. Chile is complicated, as some of our friends know. Not saying they won’t do it, but it’s complicated as well. So, there really aren’t that many places to go. It frankly explains why they’ve invested so much capital, in my view, in lepidolite and in Africa, too, because really high-quality assets that they would prefer to have just aren’t available to them.

Pavel Molchanov: Thanks very much.

Operator: Your next question comes — sorry, your last question comes from the line of Aleksey Yefremov from KeyBanc Capital Markets. Please go ahead.

Aleksey Yefremov: Thanks. Good evening, everyone. I just wanted to clarify on your 170 kilotons target by 2026, is this a high confidence approved project where you have visibility into sources of capital? Or should we think about it as your aspiration, which is conditional on finding capital at attractive cost?

Paul Graves: So, I guess there’s two answers to that. I think the projects themselves are very well advanced. These are not speculative projects. If you think about how far advanced they are, and it’s always a gray area about the numbers I’m about to throw out to you, but largely speaking, the projects are between 30% and 70% complete, and the engineering for most of these projects is much more advanced than that. And so, these are projects that are well, well underway, very high visibility as to what the project looks like, what the timing is, there’s a lot of contracting being put in place, construction is underway in pretty much all of them as well. So, the projects themselves and therefore the 170,000 tons is a very high confidence.

I would state the same frankly with regard to the financing as well. I mean, clearly, some of the biggest financing that’s going to be required is up there in Canada, but Canada is a really interesting place for many reasons. There’s a lot of potential government funding available, because particularly the downstream assets are seen as really important to a broader Canadian battery supply chain that they’re trying to encourage to be built. Also, frankly, an easier place to get funding from customers and from other potential partners who feel confident in investing in Canadian assets and Canadian resources. So, we are clearly still working through what is the best actual way to finance it, and a big chunk of that depends on where the price goes and therefore, how much cash we generate internally.

But we have a really high confidence in the ability to fund those expansions.

Aleksey Yefremov: Thank you. And as a follow-up, your $15 per kilogram low-end scenario, this is where I understand the market to be right now, yet your ASP was $20-plus in Q1. So, should we take it as you’re outperforming the market and low end of your own EBITDA scenario by about $5 per kilo, or should we just look at you being at the low end with you at $20 in the market or $15?

Paul Graves: Yes. Look, it’s an interesting question. A couple of points, a couple of observations. You can’t really judge the market on a quarterly basis, which is why we look at it on a full year basis. I mean, we touched upon things like quarterly lags in pricing that can distort things on a quarterly basis. I think the second is that our exposure to market prices in Q1 is much lower than it will be in the rest of the year as more volume comes online. The market today is below $15 by the way. I think generally, if you’re just going to try and sell non-qualified product into the market, that’s largely going to go into China and it’s going to be below $15. Not a long way below, but certainly a touch below $15. So, I think we did outperform in Q1, but it’s not necessarily because we were able to achieve a different market price.

It’s just that our portfolio had much less exposure to that market price in Q1. And we’ll see that trend start to reverse or at least change a little as the year goes on and we have more exposure to the market. So, if the market stays exactly where it is today, yeah, I think the market is probably a touch below $15 in China, probably about what they’re in outside China. So, we’ll wait. We still need to see where the market actually unfolds to see how we do relative to those numbers.

Operator: That concludes our Q&A session. I will now turn the conference back over to 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 questions that you may have. Thanks, everyone.

Operator: This concludes our Arcadium Lithium first quarter ’24 earnings conference call. Thank you.