Standard Lithium Ltd. (AMEX:SLI) Q3 2024 Earnings Call Transcript

Standard Lithium Ltd. (AMEX:SLI) Q3 2024 Earnings Call Transcript May 13, 2024

Operator: Ladies and gentlemen, thanks for standing by. Welcome to Standard Lithium’s Fiscal Third Quarter Conference Call. All lines being placed on mute, to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. It is now my pleasure to turn today’s call over to Salad Gamoudi, Chief Financial Officer. Sir, please go ahead.

Salah Gamoudi: Thank you. 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, Salah. The start of 2024, coinciding with our fiscal third quarter, presented a complex economic environment. Inflationary pressures, rising interest rates, and shifting geopolitical dynamics added to the headwinds, the lithium sector has faced over this past year. A key factor, as listeners are likely aware, was the retreat in lithium pricing from its all-time highs seen in 2022. This, coupled with a broader cooling of market sentiment within the EV and energy transition space, further compounded the challenges. Over the past fiscal year, we’ve taken proactive measures to navigate this environment. We strengthened our team with strategic additions at the executive level and implemented the necessary financial tools, to balance the continued advancement of our projects and strategic plan, while always cognizant of potential dilution to our shareholders.

We are seeing signs of stability returning to the lithium sector, with both pricing and investor interest gradually picking up. Our strong projects are in favorable jurisdictions that position us well to capitalize on this improving sentiment. At our Southwest Arkansas project, we engaged the [FENCO] engineering and kicked off the definitive feasibility study and front-end engineering design work. Working closely with the team at Koch Technology Solutions, we installed a commercial-scale Direct Lithium Extraction column at our demonstration plant. I’ll leave more of the specifics on these developments to Andy, to share as part of his operational update. However, the most significant development for Standard Lithium, and the one I’m sure many of you are eager to learn more about, happened after the close of Q3.

As we have clearly communicated over the past year, we strongly believe in the benefit that strong strategic partnerships bring. The lithium industry is facing significant challenges. Projects are becoming more expensive, access to capital is becoming harder, and even with funding, the necessary expertise for successful project delivery is rare. And solving these challenges requires taking an innovative approach. Only then will the industry be able to deliver the required supply that’s necessary for the energy transition. To that end, working closely with our advisors, we conducted a robust process to find an ideal partner that would bring the ingredients we need for success. Last week, we announced a landmark project-level strategic investment and partnership with Equinor, a global leader in energy and low-carbon solutions.

The investment is at our Southwest Arkansas and East Texas projects. Equinor’s backing is a strong endorsement of our strategic direction. We believe this partnership validates the quality of our industry-leading DLE flow sheet, the expertise of our team, and the world-class potential of our resources in Arkansas and Texas. We’re confident this partnership will generate long-term shareholder value. I’ll now hand it over to Andy, who will provide more insights on the transaction, what the partnership means at the project level, and an update on operational developments.

Andy Robinson: Thanks, Robert. As you mentioned, we’re extremely excited to be working with the Equinor team to advance our largest and highest-grade projects within the Smackover. The joint venture with Equinor validates, first and foremost, the quality of our lithium-brine assets in Southwest Arkansas and East Texas. One of the fundamental items, we’ve learned as a company, is that irrespective of lithium chemical pricing and market fluctuations, having large high-quality assets for the highest grade, will always leave you in a favorable position relative to your competitors. This is as true in lithium, as it is in any natural resource project. The work conducted by Equinor over the last several months has scrutinized these resources and has determined that the Smackover formation is where they want to invest.

Another important part of their diligence, was related to our DLE knowledge and experience, which we’ve gained through operating the demo plant for the last four years. There’s a lot of discussion in the lithium world with respect to DLE. We view DLE as a critical tool, one that allows us to unlock the value in the resource. Our partnership with Koch has been fundamental in building a shared understanding of how DLE works with the Smackover brines. And the amount of knowledge, data, and experience that our shared technical teams have in DLE and brine processing, was another reason that supported the investment. Over the past quarter, we announced a successful commissioning with the first commercial-scale DLE column at our demo plant that was performed in partnership with Koch Technology Solutions.

Results to-date have exceeded our expectations, with lithium recoveries averaging over 97%, and the rejection of impurities at the DLE step being greater than 99%. To the best of our knowledge, this is the first and only truly commercial-scale DLE column in operation in North America. The success of this commercial column is based on the prior year and a half of continuous operation of the Koch Technology at our demo plant location. Over 8,500 cycles have been completed, and 17 million gallons of brine have been processed. I know I’ve said it before, but the only way to know if your flow sheet works, is to operate it continuously for long periods of time. We’ve learned so much from the demo plant, and we’ll use these fundamental process learnings in the FEED studies for the Southwest Arkansas project, as well as into Lanxess and East Texas.

All of the work we do at the demo plant, is to make the flow sheet cheaper to build and cheaper to reliably operate. When that knowledge is combined with the highest-grade brine resources in North America, it moves us towards the most advantageous project economics. Project work continues in Arkansas on our Lanxess and Southwest Arkansas projects. New JV with Equinor means that we are fully funded, to work as quickly as we can through FEED on the Southwest Arkansas project. We’ll be adding significantly to our team with key Equinor people. These additions will significantly bolster the project’s best strengths in terms of subsurface and reservoir knowledge, project delivery, project finance, health and safety, sustainability, and commercial and off-take relationships.

The JV is kicking off a series of work programs for infill drilling, well-filled development, additional process testing, and overall FEED design. This new JV project team, is being put together as we speak, and we’re excited to see increased project de-risking at the Southwest Arkansas project, as we move towards bankable feasibility and the final investment decision. In East Texas, we continue to grow our existing land position in the highest quality and highest-grade resource areas. The new JV with Equinor means that we are now fully funded to expand our leasing activities, as well as complete additional drilling work to verify the quality of these growing brine resources. As with the SWA project, we’re adding key Equinor people to the project team, to allow us to execute more efficiently across all of the project development disciplines.

Our first goal in Texas is to produce resource reports for the key project areas, so we’re looking forward to completing the work necessary to make that happen. As we mentioned before, the grades that we’re seeing in East Texas are excellent. In some places, over 800 milligrams per liter. These are unparalleled anywhere other than a handful of projects in South America. The work that we’ve completed on our other projects has demonstrated that when you’re looking to use DLE, the lithium grade in the brine is the most significant factor to consider. And so, we think that these very large, very high-grade lithium brine assets will become significant for both us, and our JV partner. And with that, I’ll turn the call over to Salah, who will speak to our quarterly results, and the impact of the JV on our corporate economics.

Salah Gamoudi: Thank you, Andy. For our fiscal third quarter, three and nine months ended 2024, we reported a net loss of $10.4 million, or $0.06 per share, and $30.3 million, or $0.17 per share, respectively. Our net losses for the current period were primarily driven by expenses at our demonstration plant, where we have continued to invest in improving our flow sheet, refining our technology, and have continued to test commercial-scale applications with success. Further, expenses related to back-office personnel and share-based payments make up a significant portion of our operating expenses. These expenses have increased from the prior year, as we have expanded our engineering, finance, procurement, and accounting functions, in order to best serve our upcoming growth.

Further, our non-cash share-based payments, are meant to compensate and align our personnel, with the interests of our shareholders. Turning to our balance sheet, our cash balance remained flat from the second to the third quarter, and our working capital remained positive, with no term or revolving debt obligations. Subsequent to quarter end, our balance sheet strength has further been bolstered by our Equinor partnership, which provided an immediate US$30 million liquidity injection and takes away $60 million in near-term capital requirements for our Southwest Arkansas and East Texas projects that Equinor will sole fund up to that total amount. This transaction resulted in no parent company-level equity dilution. As we have stated previously, our plan of capital formation in order to execute on our projects, while minimizing cost of capital, was and is in order of importance to, one, secure a strategic partnership.

Two, secure offtake and potential customer financing, three, secure low-cost project debt financing. And four, pursue other forms of financing, such as government grants and parent company-level equity financing. The Equinor partnership exhibits that we are executing on our plan of delivering value to our shareholders. With that, I’ll turn the call over to Robert for closing remarks.

Robert Mintak: Thank you, Salah. The transaction with Equinor achieves a number of objectives for us. From a financial perspective, it provides Standard Lithium the required capital to, first, progress the Southwest Arkansas project through DFS and FEED. And second, do the work on the ground in East Texas, where we see the potential to develop what could be, one of the best lithium resources in the world. It’s delivering on these projects in a timely way that will determine long-term fundamental value for our shareholders, and this requires money. In these tough capital markets for lithium and battery materials companies, an equity financing of comparable size to this Equinor transaction, would have cost us significantly more if it could have been done at all.

Looking at it slightly differently, that implied what I’ll call look-through value of Standard Lithium on the Equinor transaction, represents a significant premium to the value the market has ascribed to these projects. Importantly, this is all done without giving up control. I would encourage you to look at the transaction presentation on our website to get a better understanding of this transaction. This is more than just a financing for Standard Lithium. It comes with benefits that have considerably more value in the long-term. It comes with a partner that has tremendous resources and skills, to not only fund the work we need to do now and in the future through its 45% contribution of capital, but also the resources required to build a truly world-class, U.S.-based, sustainable lithium business, a business that will, through the development of a portfolio of assets, create significant value for our shareholders.

And in closing, before I hand it back to the operator, I want to express my sincere gratitude to the entire Standard Lithium team, for their continued dedication and hard work that’s made this possible. I also want to give a shout-out to both Salah Gamoudi and Mike Barman. Their additions to our team have been critical in bringing these types of transactions to reality. And finally, a special thank you to our Strategic Advisor, David Park, for his invaluable insights and support through this process. Thank you. Operator, back to you.

Operator: Thank you. [Operator Instructions] Our first question comes from a line of Joseph Reagor with ROTH MKM. Please go ahead.

Q&A Session

Joseph Reagor: Hi, guys. Thanks for taking the questions. On the financing side, can you give us kind of an overview of how you see financing the Phase 1A Lanxess project, timing, and structure?

Salah Gamoudi: Thank you. Joe, this is Salah Gamoudi. On the Phase 1A project, the critical path items there are the negotiation of the brine fee with Lanxess, as they’ve determined that they would like to be a supplier. And then, as well we need to establish a royalty rate in Arkansas. When I say we, I mean that’s really the AOGC and the local regulators to do. And so, I think on the conclusion of those two processes, we’ll have a clear vision on the final economics of the project, and also how we would determine our financing for that project.

Joseph Reagor: Okay. Thanks. Can I ask a second follow-up on financing?

Salah Gamoudi: I’m sorry, can you repeat the question?

Joseph Reagor: I had a follow-up question. The operator said one question each, so I was making sure it was okay. On the Equinor financing, have you guys already received the $30 million, or is that still in process?

Salah Gamoudi: Yes, we have. We have received that.

Joseph Reagor: Okay. I’ll turn it over.

Operator: Our next question comes from a line of Greg Jones with BMO Capital Markets. Please go ahead.

Greg Jones: Hi. Good morning, Robert and team. In relation to the Equinor deal, firstly, congratulations on the announcement. I was wondering if you could share any color on how you were thinking about structuring as you were going through that process. In relation to SWA, there’s a pre-feasibility study that provides some parameters around the project. East Texas is at an earlier stage of development. How did you think about striking the right balance between retained ownership, the qualities that Equinor brings as a partner, and your view of what East Texas could become in the future?

Robert Mintak: Hi, Greg. Thank you. I’m going to utilize my team members that are on the call today, because we have a strategy that has been well communicated that from the get-go of kicking off Standard Lithium, building these projects benefits from having strong partners that are aligned. The Southwest Arkansas project is an extremely valuable opportunity for the scale and the existing regulatory environment in Arkansas. The preliminary feasibility study that we concluded in Q3 of last year, influenced how we would move that project forward. And the brine grade results were exceptional, and the opportunity to develop that large-scale project, became more and more important. The expertise that was going to be required to keep it moving forward in a timely manner, required subsurface expertise.

The project development excellence that, an oil and gas major could bring. And we’ve seen in the last year that, interest in this region by super majors taking a Smackover. So that really opened additional doors that we had been pursuing, but really moved the needle on the opportunity that presented itself. The timing of the work that we have done in East Texas aligned exceptionally well with that. The challenge has been in the market with the lithium pricing cycles that we’ve gone through from the roller coaster ride. But having a strong asset made these extremely attractive. We always wanted to maintain majority control on these projects, and bring the values and the required capital to move them towards a final investment decision. So that aligned with our strategy, maintaining control.

Getting the adequate capital, to get to the next stage where we believe we would create additional shareholder value, before we would have to tap the markets to build any further on this. But on the larger strategy, the additions of Salah and Mike this year, have allowed us to really engage at that level. So I’m going to bring Mike Barman onto the call now, our Chief Development Officer, on how we executed on the strategy. Mike, if you’re ready to jump on.

Mike Barman: Thanks, Robert. So in answering your question, Greg, there were a number of things. Just to add to what Robert said, in selecting the partner. I mean so, I think we were pretty clear that we were looking for a partner. We were focused on the oil and gas space given the complementary skill sets to what we’re looking to achieve with this project. At the end of the day, what we’re really trying to do, is take as much risk out of the projects as possible through this process. And so, we did want to give a meaningful ownership. We did want this to be a true partnership. Retention of operatorship and control was important to us. We did want a partner that was and is pushed – has a demonstrated track record of sustainability.

And ESG is a priority, which is sometimes mixed in terms of views when it relates to the oil and gas industry. And then, we wanted to make sure that we gave enough ownership that there was, in fact, a true partnership, that everybody had a meaningful stake in success here. And so, balancing that against making sure that the business was sufficiently funded to progress the assets – through the next major milestones. So, those were critical sort of decision points in our process.

Greg Jones: Great. Thank you very much. If I could just get one quick follow-up. In terms of the final investment decision for SWA, the presentation mentions 2025. Do you believe that would be a first or second half type event?

Robert Mintak: So, I’ll pass that over to Andy on the project development side.

Andy Robinson: Yes, thanks, Robert. Hi, Greg. I mean, Greg, we’ve got work to do. We’re starting this partnership with Equinor. We have the FEED work to complete as well as putting out the definitive feasibility study. I think one of the key things, as Mike was mentioning, is starting to move through the project finance process, gaining a true and full understanding of what Equinor can bring to the table in terms of their support on the project finance part of the development cycle. So, I’m not going to give kind of guidance on timing just yet, because there’s a lot of work to do. However, we’re very comfortable with providing a 2025 timeline for FID. So, that’s a lot of things to achieve between now and then. We feel that we’re in a great place with Equinor as a partner, to get towards a final investment decision in the next calendar year.

Greg Jones: Great. Thank you very much.

Operator: Our next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson: Thank you. Good morning. Andy, can you talk a little bit more about the DLE column at the demonstration plant, and how you can extrapolate the learnings from that plant and all the cycles that you’ve run to Southwest Arkansas?

Andy Robinson: Yes, of course. Yes, thanks. Thanks for the question, Jeff. The purpose of the demonstration plant is, multi-pronged. What we’re aiming to do always is continue to process real brine in real-time at the demonstration plant, and continually make the learnings to figure out, how we can simplify the flow sheet, how we can simplify operations. And sort of, as I said earlier on, basically make the project cheaper to build, but also cheaper to operate on a reliable basis. The commercial column that we put in is an eight-foot tall, four-foot diameter column. The column is exactly the same, as what will be deployed at the project, whether it’s at Lanxess or at Southwest Arkansas or eventually into East Texas as well. So, we’re using the exact same column design that will go into the commercial plants.

We have done a lot of work at the plant. Like I said, we’ve run over 17 million gallons of brine through the system. We’ve run over 8,500 cycles of the DLE columns, with the Koch Technology. So, we’re just gaining this incredible understanding, of how the Smackover brines behave when they are continuously processed to extract lithium. The learnings from the column at the demo plant for Southwest Arkansas, are really about how can, we optimize filtration, what are the lithium extraction data that we can use for the design basis for the front-end engineering design work to feed into the final investment decision, as sort of talked about just a minute ago. And then also, how does that feed into the overall design and optimization. We have additional work that we are going to complete, Jeff.

So, we’ve got some additional sort of process testing work. So we’ll be using real brines from the Southwest Arkansas project. We’ve certainly done work with Southwest Arkansas brines in the technology before, but it’s got additional work that will take place over the summer. And so, we’re continually adding into the huge amount of data and understanding that we have. So, we’re going to be going through that FEED process at Southwest Arkansas with what I believe to be the most robust understanding of DLE, in a natural brine resource that there is. So, we’re very comfortable moving through that design phase to get towards final investment decision as quickly as we can.

Jeff Robertson: Do the higher concentration, do the higher lithium concentrations in the brines significantly lower the cost to extract lithium?

Andy Robinson: Yes I mean, basically, Jeff, it’s – with a DLE process, if you sort of think about it in its fundamentals, you are building equipment that is processing brine coming into your plant in 24-7 real-time basis. And so, to make a ton of product, whether it’s lithium carbonate or lithium hydroxide, whatever your product is going to be, if the brine grade doubles, then the equipment that you need to process that, it can be smaller. And the cost of doing that is also less. So, we’ve put out project economics for Lanxess 1A, which has, an average brine grade of around 220 milligrams per liter. And then, we put out the project economics for Southwest Arkansas and the PFS study, which went out last year, where the average brine grade was a little over 400, around 440 milligrams per liter.

And you can see in those, in both of those sort of published reports. The improvement in project economics, as you increase the brine grade. So in our experience, lithium grade in the brine is the number one lever that influences project economics. Quite simply, as lithium grade improves, i.e. as it gets higher, if everything else stays the same in the brine, which it does in our case in the Smackover, so as you increase lithium concentration, things get cheaper to build and cheaper to operate. And it’s really is that straightforward.

Jeff Robertson: Thank you.

Operator: Our next question comes from Noel Parks with Tuohy Brothers. Please go ahead.

Noel Parks: Hi, good morning. I just had a couple. I’m just curious, did Equinor have any investment itself in DLE technology? Had it done any experimentation of its own? I’m just wondering – what steps they might have taken before linking up with you?

Robert Mintak: Yes, Equinor, thanks Noel, for the question. Equinor, through their venture capital, has invested in direct lithium extraction in a project in Europe, a geothermal project. So, they do have and have been paying attention to the sector. So, they have intelligence on that. And just to give you some history before I pass it over to Andy, because our team has worked through many months of due diligence on this. We’ve been actively working from the get-go, 2017, when we started Standard Lithium, on engaging with strategic partners that, could bring skilled capital directly aligned with what we’re hoping to build. And that included our initial meetings with Equinor going back as far as 2018. So, continual dialogue and engagement with Equinor, and others across the energy space about direct lithium extraction.

And how – if applied appropriately at the right project, can unlock potentially globally significant resources. Andy can dive a little bit deeper into the DLE aspect, and the due diligence and all of the work that we’ve worked with Equinor on.

Andy Robinson: Yes, thanks. Hi, Noel, it’s Andy here. Yes, as Robert says, Equinor have invested in Lithium de France. So, it’s a geothermal project in Northeastern France, sort of a similar jurisdiction in the Rhine area. They looked at that and they have been working in the DLE space for several years, as Robert mentioned. So, they came to our series of projects. They very carefully vetted and scrutinized the technology that we’ve been using and, which we propose to use at Lanxess, Southwest, and into East Texas as well. And I think they’ve been very, very happy with the performance of the Koch Technology and its integration into our flow sheet in the demo plant. So, as it stands right now, we consider the partnership with Equinor, to be highly complementary with our existing relationship with Koch. And so yes, we’re looking forward to continuing growing that partnership as we move forward through the project, Noel.

Noel Parks: Great. Terrific. I was also wondering, as far as additional leasing goes, particularly East Texas, is there any sort of area of mutual interest arrangement, or anything that sort of governs how much Equinor may participate in the project’s expansion?

Andy Robinson: I’ll take that one. Yes, thanks, Noel. Yes, we developed areas of mutual interest for the purposes of co-developing the East Texas assets, Noel. So, yes, we’ve put in place, sort of boundaries for where our joint venture contemplates. And so, these are large areas. And I think, as we sort of mentioned before, we’ve been working East Texas now for three and a half years, almost four years. We have a very keen understanding of where we want to be. We’re already in those locations. And so, the recent sort of liquidity injection, as Salah talked about earlier on, that allows us now to really pick up and accelerate that leasing activity. We’ve already got a very good, very large foothold in the key resource areas in East Texas. Now, we’re cementing that position in the region through that sort of AMI concept with Equinor.

Noel Parks: Great. That sounds exciting. Thanks a lot.

Operator: Our next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson: Thank you. With respect to Equinor, do they bring any new contacts or any new reach to the table as you look to negotiate off-take agreements with customers? I’m thinking in particular, do they open any doors for you in Europe or the EU – that other partners couldn’t have opened for you?

Robert Mintak: I’ll start on that one. Thanks, Jeff. And then I’ll pass that over to Mike, who is leading our developments on off-take. There’s no lack of interest in off-take from a strong U.S. project that has great sustainability criteria surrounding it. What Equinor brings is a level of commercial arrangement strategies that will greatly benefit what we’re building. But there has been no lack of interest in securing off-take from a U.S. asset, from both domestic requirements and from Asia and Europe. And when I say Asia, I mean Korea and Japan. But Equinor brings significant commercial expertise that will benefit from. Post the announcement, we received significant amounts of congratulations and interest in ongoing follow-up from the parties we’re already in discussions with. But I’ll just quickly hand it over to Mike for any further comments.

Mike Barman: Thanks, Robert. And I think the answer really is we expect it to, Jeff. We are getting into those details over the next couple of months.

Jeff Robertson: Thank you.

Operator: There are no more questions at this time. Mr. Mintak, back over to you.

Robert Mintak: Thank you, everyone, for joining today’s call. We truly appreciate your interest in Standard Lithium, and value your continued support. For any further information or inquiries, please feel free to contact our Investor Relations team. Thank you once again and have a great day.

Operator: This concludes today’s call. You may now disconnect.