So we wanted to show that when you look at the cash position, if you deduct $109 million minus the trade finance, it’s actually generated cash, right? And if you try to kind of triangulate that with the cash in December, probably the big item that’s missing is the payment of about $12 million of advanced 2024 interest for the long-term shareholder line.
Steve Byrne: Okay, thank you for that. And maybe one follow-up on the idea of at least considering going downstream into lithium sulfate. Do you have any preliminary cost estimates of what that project might cost? And would you do that at the mine, where you would there operate a calcine at the site, and some of that material would then be put back into the excavated areas?
Ana Cabral Gardner: Well, that is the centerpiece of BNDES industrial strategy. We will put it whatever natural gas is going to be made available to us at the lowest cost per BTUs. Most likely — I mean, Brazil is a very large oil and gas producer offshore. The gas is available in what we call the pre-salt ports of which the Vitoria port where we are is one of them. So if we can get the affordable dollar per BTU of natural gas at the port where we are already most likely, we’re going to put it at the port, which is where it makes most sense. One of our partner clients has basically announced to do exactly what we’re going to do with one of our peer companies in Australia. It’s the obvious thing to do, and we were the first to talk about this.
To do lithium sulfate is the natural evolution for a lithium concentrate producer and we demonstrated why. Now, what’s the advantage of Brazil? Clean, cheap power. I mean electricity costs $0.02 per kilowatt hour. We can obtain a very, very favorable $1 per BTU gas contract at a pre-south port at the short. And we do have a study, which, in fact, you know, is very similar to what our peers going to announce in Australia of how much this plant is going to cost. I can’t divulge it now, but this was one of the centerpieces of the conversation with BNDES. This is the ambition and it’s pretty straightforward, because it’s basic chemistry. An intermediate plant is a kiln and an acid wash. The kiln makes spodumene into beta spodumene and the acid wash produce the sulfate.
Now, what is the real key? And that’s a key competitive advantage we built into this company, residues, the tailings. What do you do with 12 tonnes of toxic sulfuric acid tailings generated per tonne of lithium sulfate? That is the question, that very few places can answer sustainably. And here in Brazil, we have an answer to that. Why? These materials can be recycled in the construction industry because it is a cement-based construction industry we have in Brazil. These materials become concrete binding number one and number two, they are aluminum sulfate, so they’re used by the cleaning products industry, which in Brazil is of massive scale. We have 230 million people obsessed with cleaning. So we have one of the largest cleaning products industries in the world.
So we can absorb all of the tailings. So we can do this zero tailings. And there are very few places in the world that can do the zero tailings. Most plants involve shipping these toxic sulfuric acid tailings by boat elsewhere to a developing country with a lot of people, where you got a cement-based construction industry and a large cleaning products industry. But we have this market right here. We are here. So that is also a key competitive advantage to doing intermediate chemicals, because we solve a key piece of the puzzle for everyone, even for China. For China, we can deliver what we call intermediate negative. We can deliver carbon credits that allows China to do zero carbon chemicals. For the West, we’re going to deliver a chemical to chemical supply chain with zero carbon and zero tailings.
So the West doesn’t have to worry about licensing or worry about storing or doing what have you with 12 tonnes of toxic sulfuric acid-loaded tailings generated in the intermediate chemical process. Waste is the key to where these industries are going to be located. How to actually recycle and reuse the waste responsibly from an environmental perspective. And in fact, that’s what China does very well today. That’s what we can do, because of these reasons, you need a large cement-based construction industry, and you need a large cleaning products industry to take all the aluminum sulfate.
Steve Byrne: Pretty good. Thank you.
Ana Cabral Gardner: You’re welcome.
Operator: Your next questions from the line of Joel Jackson with BMO. Please go ahead.
Joel Jackson: Good morning, Ana and everyone. I have a few questions. I’m going to ask them one by one. So, can we talk about SG&A? You talked about earlier this year about trying to get SG&A down to, I think, about $11 million run rate annualized. I think you did about a CAD10 million run rate in Q4, so getting there — CAD10 million, excuse me, in the fourth quarter. Can you talk about what you think SG&A will look like in Q1 and Q2 of this year? Q1 of this year, what it was, how much of that — how much of the burn rate might be in SG&A for the strategic review?
Ana Cabral Gardner: Yes. Well, if you look at this slide, Matt, you can take it as well and please help me here, okay. You see that we posted $42 million, right? When you look to the right, you see the $24 million. So if you deduct $24 million from $42 million, we’re still at double the guidance we gave you. We try to give you guys a reason of why is that? And we do believe that this cluttering of SG&A will not be here in all its entirety in Q1, but some of it’s still going to be here, such as the legal. We still have the teams working on our SAP. So the Q1 is still going to be work in progress. We’re still going to be getting there. Matt, when we look at the bridge though and that goes back to your point, Joel, on the operating cost, we’re almost hitting it, right.
So the SG&A becomes a working progress of actually decluttering and evolving into what we call steady-state SG&A. But on the operating side, we’re almost at the guidance we gave at BMO’s conference for, what we call a run rate operating cost. Matt, do you want to compliment?
Matthew DeYoe: Sure. I mean, Joel, some of this is going to be tightening the belt, where we need to and where we can. Obviously, this is kind of a recurring number. So to the extent we have litigation or the strategic review, those will be additive. But from a bottoms up perspective, if you think about the costs that really take to run the corporation, it’s a pretty lean back office. Now, we hope we’ll get additional scale as we ramp Phase 2, because we won’t have to add nearly as many heads as we would when we double capacity, right? We’ll get key operating leverage through SG&A and port traffic primarily as we double. But from our perspective, if we take a more stringent approach to spending and perhaps spending that’s more in line with I would say, where the economics of the market are versus, if you rewind to really the first half of the year, when price expectations were much higher and we were spending to ramp the facility, we think we’ve got a pretty credible path to getting there.
But it’s a little bit more of a lift perhaps, than the operating cost side, but numbers all the same that Ana and team feels pretty comfortable about.
Joel Jackson: Okay. And so what’s the monthly burn rate on this strategic review?
Ana Cabral Gardner: It varies. That’s the problem. And this is what’s called shooting a moving target. You know, it really varies and that’s one of the items we don’t control. That’s one of the reasons why we can’t fully declutter this. It’s one of the non-predictable elements. It totally varies on the flow of drafting documents and structuring and things that come our way. But I would say is much alleviated this year. It’s much, much alleviated, because we don’t have to do structuring. We don’t have to do the heavy lifting of what a transaction is going to look like, documents already being overly marked. So it’s different, It’s a lot easier, but it’s still here, right? It’s still cluttering the numbers. But it’s one of the non-predictable items, totally outside of our control.
Joel Jackson: Okay. You said Q1 spodumene production was 53,000 tonnes. It was 60 — 59,000 tonnes in Q4. So you’re down about 7,000 tonnes in the quarter sequentially. Talk about why you’re at lower utilization in the first quarter?
Ana Cabral Gardner: Well, it’s a funny quarter in Brazil. It’s kind of we have our own version of the Chinese Lunar New Year. There’s something called Carnival, where it’s pretty hard to get people to operate a capacity. So we kind of lose — most companies lose 10 days. If we whipped up our team as we did, we lost about five, six days, where people kind of show up not exactly sober, not fully productive and it happens, it’s cultural. These people have been working like crazy, right? So Carnival is a problem. And then it — we also caught the, you know, what we call the pressure valve of the first week of the year, because we put all systems go to deliver the 2023 last shipment, which sailed. I’m not sure if you remember this, but it literally sailed on the 30th, right.
So the first week of January was like, oh! yes, we’re going to relax. No, we won’t, because we’re going to have to make first quarter. So it was a combination of what we call collective vacations, where we’re working with downshift in the first week of the year, plus the Carnival. And it’s kind of always like that. This is — it’s the Brazil version of the Lunar New Year. You might want to build into your calendar. First quarter has Carnival and first quarter has the hangover of new year. And in our case, it was a hard hangover. Because, let me tell you, to make that shipment, we made people work 24/7 crazy hard. Our general manager for the plant didn’t spend Christmas nor New Year with his family and his new granddaughter in South Africa, that man stayed here.
He didn’t meet his granddaughter to make that shipment. So that was the level of commitment of this team. They were like really all out to ship that boat in December and make the cutoff for the year, right?
Joel Jackson: Okay. And just finally, you gave color around, so you’ve obviously given Q4 pricing. You talked about what the April shipment is going to be final. For the two shipments in Q1, can you give an idea of what pricing looks like and how much is provisional on that?
