Standard Lithium Ltd. (AMEX:SLI) Q2 2024 Earnings Call Transcript

Standard Lithium Ltd. (AMEX:SLI) Q2 2024 Earnings Call Transcript February 12, 2024

Standard Lithium Ltd. 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 morning. My name is Krista and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Standard Lithium Fiscal Second Quarter Earnings Conference Call and Webcast. [Operator Instructions] Thank you. I will now turn the conference over to Salah Gamoudi, Chief Financial Officer. You begin your conference.

Salah Gamoudi: Thank you and welcome everyone. Joining me on the call today are Robert Mintak, Director and CEO, Andy Robinson, President, Director and COO, and Mike Barman, Chief Development Officer. As a reminder, some of the statements made during our call, including any forward expectations, company performance, and timing of projects, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release, which also applies to this call. I will now turn the call over to Robert.

Robert Mintak: Thanks a lot for kicking things off. This past quarter has been transformative for us at Standard Lithium, starting with strengthening our leadership team, to better navigate our strategic and financial journey in the current market conditions. I’m delighted to introduce both our new CFO, Salah Gamoudi, and Mike Barman, our new Chief Development Officer. Salah brings an extensive track record in the public market, the energy sector, having enhanced company value, and delivering shareholder returns. Additionally, Salah is based in Austin, Texas, adding regional insight. This coupled with his expertise in driving operational efficiencies, positions us well to enhance shareholder value in the current complex market conditions that we’re navigating.

Mike Barman has stepped into the Chief Development Officer role, bringing with him a wealth of experience in investment banking, and a strong understanding of resource, and commodity cycle. This expertise is valuable, as we work to finalize key commercial contracts and agreements. With Mike’s insights, we’re making thoughtful progress in our discussions regarding long-term lithium offtake agreements that are pivotal, to our project strategy. Furthermore, his experience is instrumental as we advance our efforts in forming the partnerships and more that will build upon the solid foundation that we’ve established across the Smackover region. While we continue to make progress in Arkansas, our East Texas expansion work has achieved a significant milestone.

We’ve uncovered the highest lithium brine values ever reported in North America, underscoring the potential value of this expansion strategy. The exceptional quality of the lithium brine confirmed at concentrations of up to 806 milligrams per liter, with an average of 644 milligrams per liter across our three exploration wells, emphasizes the global importance of this opportunity. With a significant investment in our exploration drilling program now completed, we’re poised to unlock the full potential of this Texas brine asset. This has attracted the attention of potential strategic partners and joint development interests. The presence of elevated potassium levels, presents an additional opportunity for value creation that we’re diligently exploring.

Additionally, recent developments highlight the interest from global energy companies looking at lithium that are now active in the Smackover formation. This further reinforces the potential as a significant global lithium production hub. Building on our strategic plans, we exercise our option agreement with TETRA Technologies, ensuring control over the lithium brine production rights at our South West Arkansas project. We’re advancing this project right now. Underway is the front-end engineering design, along with the definitive feasibility study. Post-quarter, we announced that we engaged Ausenco Engineering to lead these studies. We’ve completed and filed the definitive feasibility study for the Phase 1A project. And during the quarter, Lanxess also expressed its intention to participate in the project, through a series of commercial agreements, namely for brine supply and disposal, a site lease for a production facility, and certain infrastructure services.

These negotiations are underway, and these agreements will form and establish the operational framework for Phase 1A. Additionally, we announced an engagement with Citi, a move that significantly strengthens our strategic approach. Citi will play an important role in facilitating strategic financing, and partnership options for 1A, as well as advancing the South West Arkansas project and the initiatives in East Texas. Citi’s expertise and their global reach make them a valuable addition to our efforts. As we move into 2024, it’s clear that we’re navigating through a turbulent time in the lithium sector. In 2023, we saw lithium prices retract significantly from their all-time highs, an 80% reduction that has reverberated across the market. Our share price has been reflective of these broader sector trends.

Despite this, the long-term prospects for lithium and for standard lithium remain strong. Furthermore, recent developments such as the Inflation Reduction Act and the U.S. Treasury Department’s recognition of critical minerals, underscores the significance of developing domestic sources for EV battery material. Our Smackover projects align perfectly with these objectives, and we’re actively engaged with government agencies and departments to optimize our position and access financial support where available. In summary, our approach involves efficient capital sourcing, adaptability to market dynamics, and leveraging our valuable assets to maximize shareholder value. Our commitment to the disciplined execution of our strategy, positions the company in a strong place, in this evolving lithium sector.

Now I’d like to hand it over to our COO and President, Dr. Andy Robinson, for a more detailed update on our projects and operational development.

Andy Robinson: Thanks, Robert. Before I jump into the details of our projects, I’d like to take a step back and really emphasize the quality of the resources that we’re unlocking. Our ambition, is to build a very large lithium-producing company for the North American market. In order to achieve this, we need three conditions to be true. Firstly, we need a very large, high-quality resource. Secondly, we need a proven and demonstrated technology that economically extracts lithium from the brine resource and converts it into a product that people want to buy. And thirdly, we need to be operating in a region where we have community and stakeholder approval. In the last quarter, we produced two key technical reports, the DFS for our 1A project and the PFS for the South West Arkansas project.

These reports spelled out the high-quality nature of the resources that are available to us. At Lanxess, we were able to show a long-term project that piggybacks off of a brine resource that’s been in production, for bromine for almost as long as I’ve been alive. That provides us with a tremendous amount of data, and the confidence that we can pump brine from the Smackover, extract a chemical compound from it, and re-inject it back into the same formation, and that we can do that for several decades. Drilling results from the South West Arkansas project that we highlighted in the PFS, are significantly better than we had previously assumed, both the quality of the rock in terms of its ability to hold and produce lithium brine and the concentrations of lithium in that brine.

So we ended up with a resource of much higher quality that can produce more lithium on an annual basis, and can therefore drive more value growth. At the same time as the public technical reports, we’ve been investing significant time and resources into East Texas, where a large team over the last three years has identified some incredible-looking resource areas and has been aggressively leasing and then drilling those resource zones. The quality of the lithium resources that we’re adding into our portfolio in East Texas, is second to none, and the scale of what we’re building supports our vision of growing a nationally important lithium business. In terms of de-risking technology, we continue to operate and improve our large demonstration plant in El Dorado in Southern Arkansas.

I can’t overstate the importance of this demo plant. It’s only, because we have continuously processed over 16 million gallons of real Smackover brine in real time on a 24-7 basis for over three and a half years that, we are now in a position to commercialize the technology. You only find out what flow sheet actually works when you run a plan for long periods, on a continuous basis, with real live brine straight from the formation, and then you re-injected it back into the formation afterwards. This improvement work is being completed in partnership with [Koch], and we continue to have an excellent working relationship that’s focused on bringing large-scale commercial DLE to the Smackover formation. Lastly, we continue to be incredibly grateful for the communities, stakeholders, and regulators in Southern Arkansas and East Texas.

We don’t take community support lightly, and we were delighted to hold an open town hall meeting in early December in Louisville for our South West Arkansas project. The feedback we got was hugely supportive and positive. It also reminded us of our duty to keep the local communities informed and engaged, as any development in the region will have an impact. And even if it’s positive, it will continue to have an impact for many decades, so it’s important to start off right and maintain that level of trust. We hope to continue that dialogue in the region and beyond, as we continue to move our projects towards commercial production. As we move through this quarter and into the rest of the year, we have an ongoing process to put sufficient project finance in place to de-risk our first commercial project.

The technical reports issued last quarter generated a lot of off-take and strategic interest, and we’ll continue to advance those discussions, so that we have the right partnerships in place at the right time to move our projects closer to production. We’ve announced the next phase of project work on the South West Arkansas project, and we will be completing additional resource and production modeling work to test the limits of what is possible for future production from this first-class resource. The Ausenco team will be working, with all our partners to refine the flow sheet for the South West Arkansas project, and we look forward to future announcements as the integrated team moves the project, through FEED, towards a final bankable feasibility study.

In East Texas, we’ll continue to strategically expand our land position with the very highest quality rocks, and the very highest grade lithium brine. We should be in a position later in the year to demonstrate in technical reports, the scale and quality of this globally significant lithium, potash, and bromine asset. It’s probably worth spelling out that one of the greatest learnings from having completed the PFS and DFS recently, is that when it comes to DLE and lithium brine projects, grade is all-important, when it comes to the project economics. As you increase lithium grade, your economics get better, and you move further left on the cost curve. It’s this understanding that has supported our efforts in East Texas, to secure the best lithium brine assets in the Northern Hemisphere.

And so, just to reiterate, over the last quarter and into the balance of calendar ’24, we continue to de-risk and grow the scale and quality of our lithium brine assets. We continue to improve the technology needed, to unlock the value of these globally significant resources. And we’re working in a part of the world that, views what we’re proposing to build in a positive light and wants to be a part of it. And as we move along that path to commercialization, we’re looking to bring in the right partners at the right time to build these projects. Now, the question turns to funding and moving these projects forward. And with that, I’ll turn the call over to Salah, who will speak to our quarterly results and the path forward.

Salah Gamoudi: Thank you, Andy. For our fiscal second quarter for the three and six months ended December 31, 2023, we reported a net loss of $10.2 million, or $0.06 per share, and $19.9 million, or $0.12 per share, respectively. Expenses that drove these net losses primarily relate, to operating expenses at our demonstration plant, and costs in support of necessary personnel to continue to advance our projects. As Andy alluded to earlier, your dollars as investors are being well spent, as our continued work at our demonstration plant and related engineering continues, to advance our flow sheet and refine our operational capabilities, to better ensure a smooth ride, as we scale towards commercial production at 1A and SWA. Moving on to our balance sheet, we would like to highlight, our continued balance sheet strength.

With positive working capital, no debt, and a strong and substantial asset base, Standard Lithium is poised for growth, despite us being in a challenging lithium price environment. Our lack of financial leverage in addition to our projects, in particular SWA being at the front of the cost curve, gives us meaningful flexibility, to pursue the most advantageous strategic partnerships, offtake agreements, and financing options, for our shareholders. During the quarter, we had negative free cash flow of approximately $23.6 million, mostly owed to the completion of our East Texas drilling program, continued East Texas leasing efforts, and the completion of our definitive feasibility study on Phase 1A. We expect that with the conclusion of our initial drilling program in East Texas, that capital spend should slow in the upcoming quarters, barring the finalization of advantageous strategic partnerships or offtake agreements, which may allow us to advance our projects sooner.

As we previously announced, we are currently advancing strategic financing processes, to support the capital requirements of our projects with both Citi and BNP Paribas. Our priority in these capital raising efforts, is value enhancement to our shareholders. We aim to do this by minimizing our cost of capital through pursuing an order of priority. One, non-dilutive financing through potential offtake prepayments, with our customers. Two, strategic partnerships and joint ventures. Three, minimal cost debt, inclusive of potential DOE or EXIM bank funding. And four, opportunistic equity raises with the right partners. In addition, during the quarter, we established an at-the-market offering program that we view as an important tool, but not a primary means, of providing the liquidity we require, to advance our projects in the most value-creative way possible for shareholders, while minimizing dilution and cost of capital.

Further to the above, while not a required means of financing to stand up our projects, we are pursuing several federal grant packages, for our projects with both the DOE and DOD. If successful, such grants could significantly improve returns to our shareholders. With that, I’ll turn the call over to Robert for closing remarks.

Robert Mintak: Thank you, Salah. Standard Lithium is advancing towards becoming a significant lithium producer in the United States. We are working to build a portfolio of Tier 1 projects, with potential for substantial production capacity, focusing on a deliberate and strategic approach to growth. Collaborating with strong partners is central to our strategy, enabling us, to leverage collective expertise and resources. While this is an ambitious objective, we are fully committed to a methodical and responsible approach to reaching it. Thank you for joining us today on this journey, to lead a new era, of responsible lithium production in America. Operator, back over to you.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Joseph Reagor from ROTH MKM. Please go ahead.

Joseph Reagor: Hi Rob, Andy, and team. Thanks for taking my questions. I guess the first thing, as you guys think about advancing Phase 1A, what besides financing is still left to be done, before you could officially, break ground on construction?

Robert Mintak: Hi, thanks, Joe. It’s Robert Mintak here. I appreciate the call. With regards to advancing Phase 1A towards a final investment decision. In late 2023, through the commercial agreements that we had previously established with Lanxess, they informed us of their intention to participate in the project through a series of commercial agreements. So rather than an equity interest in the project company, or in the offtake, or the marketing of lithium carbonate sales. So, we’re working through a series of agreements with Lanxess now. Primarily, brine supply disposal agreement, the commercial site location, and the certain infrastructure tie-ins. So those discussions and negotiations are underway and we’re making good progress.

Additionally, in December, we held our hearing with the Arkansas Oil and Gas Commission on setting in place a royalty regime that’s required for the commercial operation. We presented a proposal that, we will be continuing the dialogue with the AOGC at a meeting in April, for further clarification. We’re very confident that our proposal will be well received. But those are the other workflows that are underway towards the final investment decision. So now with the certainty on the equity component, working with Citi, and also the strategic interest, to see where there may be participation there. And then also on the marketing of the offtake, now that we own the rights to all of the lithium carbonate that, will be produced at 1A. So those are the workflows that are required to be completed as we look towards our final investment decision.

I’ll pass it back to the operator now.

Operator: [Operator Instructions] Your next question comes from the line of Noel Parks from Tuohy Brothers. Please go ahead.

Noel Parks: Hi, good morning.

Robert Mintak: Hi Noel, good to hear from you.

Noel Parks: Thanks. Thanks. You know, a sort of a related question, but as you’re looking over the range of potential partners, whether it’s strategic, or financial, I just wondered, can you give us feel for what the most important points of negotiation are right along now? Sort of what you need to get together on as far as reaching agreement. I’m wondering just things that are more pricing related, lithium pricing related, or issues of, sort of like a dealer structure flexibility in terms of, fixed terms or rates or options for future ownership. Just kind of, what are the things that you’re going back and forth with parties on?

Robert Mintak: Thanks, Noel. We’re fortunate and that we have very attractive projects, both on the cost curve, on the path towards going into production with a clear permitting regime, infrastructure, and stakeholder support. So interest from strategics, looking at the project is extremely high based on the fundamentals. We’re also very fortunate with our business plan to-date, which has been working to develop the project in alignment with complementary and strong partners. So the relationship with Lanxess has enabled us, to leverage their operations, infrastructure, and permits to advance our DLE process. The agreement that we put in place way back in 2017 now with TETRA allowed us to secure a high-grade, very prospective resource to develop for the lithium opportunity in Arkansas.

And then the work that we did to bring Koch as an investor. And then additionally to bring in their business expertise across several different sectors that we’re using to advance the projects. They’re all separate expertise that each of those partners have brought. And we’re looking at that similarly when we talk to additional strategic opportunities that we’re looking at. So the opportunity and the dialogues that we’re having are based on what each partner brings. So, we’ve been very clear that we felt that these resources that, we’re developing would benefit from the energy sector. We’re working in an area with 100 years of expertise in drilling wells, and understanding reservoirs, pipelines. So that would be a natural complementary partner.

The recent activity and names that have entered into the sector, and interest that we’re seeing in the sector, has confirmed that. So that would obviously be a strong partner. And then what they bring along with the checkbook, those expertise, those guide our negotiations with those partnerships. We’re also looking at long-term off-take agreements with strong partners that would align and allow us to advance the projects in non-dilutive ways. So those discussions are underway as well. As well, there’s a significant amount of interest as investment in the project. So having alignment with sources of capital that are looking at our long-term platform of projects that we’re building. So the discussions are around value in the ground, what partnerships can bring to us, recognizing the work that we’ve put into the ground to de-risk these projects.

The only advanced direct lithium extraction project in North America with a process that we’ve shown works. So the dialogues are really around what partners bring, where we can show the value that we’ve created. Lithium pricing obviously impacts all of those, but with the right partners, we’re looking at the long-term plans for these projects. I’ll pass it over also to Mike Barman, who most of the people on this call haven’t had a chance to dialogue, because Mike, as our Chief Development Officer, is key in these negotiations. Mike, if you want to step up here.