Arcadium Lithium plc (NYSE:ALTM) Financial institution of America Securities 2024 World Agriculture and Supplies Convention February 27, 2024 2:00 PM ET
Firm Individuals
Paul Graves – Chief Government Officer
Unidentified Firm Consultant
Thanks. Our subsequent session is with Arcadium Lithium in fact created from the current merger of Livent and Allkem. Arcadium owns quite a lot of Argentine property — I did it, sorry, variety of Argentine carbon property in addition to spodumene hydroxide conversion property globally. Please be part of us in welcoming Paul Graves, CEO for our fireplace chat. Effectively, Paul, let’s begin off this dialogue. Once more, please submit questions on the app. We’ll make us interactive and I’ll learn them.
Query-and-Reply Session
Q – Unidentified Analyst
Let’s begin with the merger rationale. So, you are combining operations in Argentina. You have got some growth efforts in Quebec, you have got elevated flexibility from serving prospects, a number of property, you are feeding hydroxide vegetation and a number of carbon property now. Perhaps discuss in regards to the merger rationale?
Paul Graves
Sure. Look, I feel the place to begin for the merger rationale from our perspective is that we consider that in the long term, essentially the most profitable lithium corporations are going to be absolutely built-in. You are going to have management of the useful resource and you are going to have management of downstream processing and you are going to have management of the client relationship. They usually’re all necessary. Folks ask me typically the place is the worth? The worth is admittedly unfold all through that chain.
And what we noticed was a chance to speed up this plan of each development and development as an built-in enterprise via the merger greater than both of us would have been in a position to do independently. We actually have complementary experience whether or not it is in downstream hydroxide or brine-based processing or hard-rock mining. And I feel we even have a a lot stronger stability sheet on account of the transaction. It permits us to proceed to take a position as we’re exhibiting at this time via these cycles whereas on the similar time having higher working effectivity, greater margins, greater and deeper relationships with prospects.
Last level I will make is that, we discuss about scale being necessary on this business, not scale for the sake of it, however scale with prospects. You can’t be a small provider to a buyer. You simply slip too far down their precedence checklist and it’s essential be one of many high two or three suppliers to every buyer you have got. And if you are going to have a couple of buyer which means you simply must be greater.
Unidentified Analyst
So, let’s undergo a number of the issues that you simply talked about final week. I’ve bulletins as a part of your first outlook for the mixed firm. So, you introduced that you will be slowing down expansions together with the large Quebec spodumene mine, a number of the expansions taking place in Argentina at Sal de Vida, the greenfield and the Fenix carbon property, which we name Hombre Muerto. Everyone knows what’s occurred in lithium markets, however please elaborate on the rationale for slowing down a few of this development.
Paul Graves
Sure. Look, I feel there’s two causes behind it. We have now to run the enterprise primarily based on the setting we’re in at this time. And pricing is decrease at this time than it was a yr in the past, decrease than after we introduced the merger. These initiatives all nonetheless make sense at what we consider the long run lithium value is more likely to be. However you must acknowledge that, if pricing stays the place it’s at this time, we do not generate the identical degree of profitability within the short-term or the identical money movement.
And so, we have now to try all of our growth plans and resolve how rapidly are we going to develop them. Does the market even want all that quantity on the time-frame that we had been seeking to put it in place? We’re considerably lucky that Sal de Vida which got here from Allkem and Fenix or MDA or Hombre Muerto or name it no matter you would like, from Livent are principally proper subsequent door to one another.
And so, the chance to sluggish these down and take a look at methods for them to be developed in partnership, notably as a result of on ground-based sources, the entire price, all of the complexity is admittedly aboveground infrastructure that the flexibility to sluggish it down really we expect will fairly seemingly find yourself with a decrease capital price for these two than if we carried on the similar tempo.
Quebec’s just a little completely different. We have now the Nemaska which can proceed to develop. We would already had the mining at Whabouchi little bit forward of the hydroxide plant at Becancour. So, the scope to rethink in regards to the timing there in order that we nonetheless are on observe to provide hydroxide on time.
After which, after we need to take a look at James Bay, we nonetheless assume there are alternatives to optimize in Quebec. Nemaska form of single-entry gated entity, however on the suitable circumstance as alternatives to consider downstream useful resource for James Bay at Becancour perhaps even precisely the identical location, the placement is massive sufficient.
So, in some regards it is not nice that we have now to decelerate. We will probably be late to bringing quantity to market, six to 9 months later perhaps. However I feel it should give us the prospect to perhaps take the chance to have a look at these initiatives collectively and drive some advantages from there.
Unidentified Analyst
And also you additionally lowered some manufacturing on the Mt. Cattlin legacy Allkem mine?
Paul Graves
Sure, we did. I imply, Mt. Cattlin’s very a lot end-of-life for these of you who know the mine. It is bought someplace between one and three years of life left. And so, in at this time’s price setting, it simply did not a value setting simply did not make it sense to maximise manufacturing of a mine that is nearly end-of-life.
So, the purpose frankly is to decelerate manufacturing, reduce the quantity of fabric we promote at low costs. And if the worth recovers nice and if it would not, we’ll find yourself in the identical place we might have been anyway the place Cattlin will probably be shut down.
Unidentified Analyst
So, let’s speak about that after which we’ll return to Argentina and Quebec. So spodumene value round $850, $900 ton one thing like that now. If these costs keep spot spodumene, do you run Mt. Cattlin 2025?
Paul Graves
Most likely not.
Unidentified Analyst
And what would it’s essential make sure that it is — what value level do it’s essential maintain it going?
Paul Graves
I feel in case you go searching, lots of people say, $1500 a ton is the place quite a lot of funding choices are being made in spodumene. I feel Mt. Cattlin wants pricing in that form of vary for it to make sense to increase the mine life one other two or three years. If you are going to go underground, which is what comes after that, two or three years, it is in all probability even a better value. So, I feel it is in all probability truthful to say it is onerous to see Mt. Cattlin happening past two or three years. But it surely’s solely attainable. I imply, who is aware of? Spodumene costs had been $6,000 a ton, not that way back.
Unidentified Analyst
Okay. Let’s speak about Argentina. So now you have bought two-close situated — sorry, you haven’t sorry — once more, you have got two property which are in manufacturing proper now. And speak about issues you are able to do to perhaps combine and make the Argentine enterprise higher, the place you have bought Olaroz, that is largely a technical-grade lithium, technical-grade carbonate producer. You have got Fenix or Hombre Muerto that largely produces principally battery-grade carbonate. Are there issues you are able to do with conversion vegetation and the feedstock to optimize issues?
Paul Graves
Sure, I feel there is a actuality of manufacturing carbonate from brine is that usually talking, notably with a traditional system, you produce some technical-grade carbonate and you’ll produce extra carbonate, in case you’re keen to decrease the standard. For a lot of pond-based techniques, you may by no means actually get to 100% battery-grade. We at this time ship most of our battery-grade carbonates into the lithium hydroxide house and we refine it into battery-grade lithium hydroxide. We do not want carbonate nearly as good as what we use. It simply so occurs that the previous Livent’s DLE course of produces battery-grade carbonate as just about commonplace.
The optimization alternatives to take the decrease worth technical higher into the hydroxide facet and promote the battery-grade carbonate. And it is an fascinating one as a result of what you discover is, if you are going to promote technical-grade carbonate in a market like 2023, you are not likely deprived. I imply hydroxide did not have a premium to carbonate then technical grade did not have a reduction to battery-grade carbonate. However more often than not, and notably in softer markets, you get a cheaper price for technical-grade.
So, we prefer to keep away from promoting technical grade the place attainable. So, the chance and what we’re seeking to do is to optimize the movement of carbonate, which grades go into hydroxide, the place we supply the battery grade from. By the best way, our prospects are all on the lookout for this. Just about throughout the board, each battery-grade hydroxide buyer we have now is now on the lookout for some flexibility to take carbonate and hydroxide beneath these contracts. So having that diploma of flexibility beginning with battery-grade carbonate, I feel, it is going to make an enormous distinction to our capability to draw the very best prospects.
Unidentified Analyst
So perhaps over time, Olaroz carbonate finally ends up being transformed in your vegetation in North Carolina and elsewhere, and you find yourself promoting historic Fenix, Livent, battery-grade carbonate service provider market?
Paul Graves
Service provider market, however we promote it into the battery-grade market. It is extra more likely to be carried out as a part of a hydroxide contract with a serious OEM. I imply, you all know, I feel the OEMs are transferring facet to facet, backwards and forwards on their very own battery roadmaps from actually very a lot excessive nickel and subsequently hydroxide primarily based to start out with to LFP and mid nickel, which can are usually extra carbonate primarily based. And so, they’re on the lookout for flexibility too. And I feel they’d slightly do it, I had GM as soon as say, I do not want 10 lithium suppliers, proper?
They’re seeking to have a concentrated checklist of lithium suppliers that may meet all of their wants, hydroxide at this time, carbonate sooner or later, in all probability metallic in the long term as they transfer to stable state too.
Unidentified Analyst
So, keep in Argentina right here. So, if this present setting would not enhance, you now have some choices. Do you prioritize spending on the legacy Livent carbonate? Or do you prioritize spending for the Sal de Vida greenfield which is ramping up? There’s two-part. How do you see the very best use of capital?
Paul Graves
Sure. It is a tough one as a result of we’re in that early section of asking that query. I feel Sal de Vida is a two-phase venture. So is Fenix, the MDA Livent asset, there’s an evaluation as to which makes essentially the most sense to maneuver into the following section or perhaps neither of them. Look bluntly, it might be relying on what the market situations are. There is a pure lower off level to not transfer into the following section.
End stage 1, Sal de Vida and what we name 1B at Fenix and perhaps we cease at that time. What we do not need to do is cease initiatives partway via. We noticed in COVID after we had been compelled to cease initiatives, it is costly and it slows you down a heck of much more than you realized. So the place attainable, we might slightly optimize and decelerate initiatives than cease them.
Unidentified Analyst
What do you assume it prices you to decelerate the carbon growth at Hombre Muerto and Fenix?
Paul Graves
I do not assume there will be an enormous price to slowing down the Fenix venture. And I feel if you take a look at Sal de Vida and Fenix collectively due to the place they’re, they’re each fairly superior, they’re each about half full. I feel with some comparatively small modifications to the execution plan, I feel any enhance in capital price will probably be offset by financial savings within the execution plan. The price is admittedly the six- to nine-month delay of bringing the fabric on-line slightly than essentially a better capital price from slowing them down.
Unidentified Analyst
And whereas we’re speaking about Argentina, I imply, we have got a brand new authorities, completely different insurance policies. What do you assume — what is the trajectory like in Argentina proper now, the setting for funding?
Paul Graves
It is no completely different to the way it’s at all times been. The one factor about Argentina is it is risky. It modifications. It at all times modifications, proper. There is no doubt that the brand new administration completely has actually talks about implementing coverage that will probably be favorable to funding in Argentina and now the true query is, can it really ship on these insurance policies? And it is tough as a result of I am certain you recognize they do not actually management a lot of the equipment of presidency, however they do have an extremely robust mandate to push their modifications via. So, I feel the setting is fairly good. It is just a bit completely different than it was two or three years in the past, which by the best way, is just a little completely different to the way it was six or seven years in the past, which was just a little completely different to the way it was 11 years in the past. It’s a must to be taught to function via completely different environments in Argentina.
Unidentified Analyst
Keep in mind, you are allowed to ask questions within the app and I’ll learn them. So, let’s speak about Quebec now. So, like we talked about earlier, so that you slowed down Nemaska, Whabouchi mines to meet up with Becancour, the conversion plant. Speak about I imply, we have been ready to listen to about what strategics may become involved with that entire venture? Speak about perhaps an replace on that.
Paul Graves
Once you stated strategic?
Unidentified Analyst
Effectively, how we get, sure, concerned with the just like the product offtakes, strategic investments, like speak about some updates on that?
Paul Graves
Sure. Look, I feel Quebec, there’s a couple of fascinating points to Quebec. The sources are good onerous rock sources. There’s good infrastructure when it comes to hydroelectric energy. And I feel that is a very necessary level as we take into consideration sustainability in our business. Quebec itself has some, I feel, some superb insurance policies to draw prospects into Quebec and is offering assist at locations like Becancour to construct infrastructure there. But it surely’s nonetheless — look, it is dearer to mine in actually chilly areas. It is extra sophisticated to mine in these fairly distant and infrastructure-poor areas.
I feel it is in all probability truthful to say that getting permitted just isn’t as simple in Quebec as many different elements of the world. I feel it is also truthful to say that labor prices and development prices are a lot greater in elements of Canada and Quebec particularly. But it surely’s IRA-qualified materials. It is a location that actually has the assist of many U.S. North American automotive corporations. So, look, general, we prefer it as a result of it provides us geographical diversification.
Our prospects prefer it as a result of it is IR rate-qualified materials. And so, I do assume it is going to be an necessary a part of the non-China lithium panorama. And there actually is not a lot, let’s be trustworthy. There’s little or no non-China lithium processing accessible at this time within the higher-grade merchandise like lithium hydroxide.
Unidentified Analyst
You have got a associate in that venture, Investissement Quebec or IQ. Perhaps speak about that relationship? Are you aligned on how the venture will develop? Who the product will get offered to? And the way that may develop?
Paul Graves
I’ve to watch out as a result of there are some IQ representatives within the room together with some Nemaska board members. So, I will be cautious what I say. No, look, I feel we’re utterly aligned. Look, whereas our targets might come from completely different locations, we each need the identical factor. We would like a profitable Nemaska venture.
We would like it to promote to the very best prospects. Optimally, that will probably be prospects which are moderately intently situated to Becancour. It is a lot simpler with lithium hydroxide to have a buyer that is shut by than one which’s a good distance away given the qualification, the product warranties you must give, the challenges typically with these processes. I feel we’re all actually fairly intently aligned.
Unidentified Analyst
Let’s examine, if anything I need to speak about earlier than we get just a little bit extra.
Paul Graves
what any of our questions are? Come on, you may’t.
Unidentified Analyst
I will not name.
Paul Graves
It is by no means going to occur.
Unidentified Analyst
And you do not need to have solutions. I do know this too. Truly, I need to ask a query. I do not assume on the convention name final week, like, I do not know if Naraha, which is the legacy Allkem hydroxide conversion plant funding in Japan, if that got here up. How is that going? What are the plans for that?
Paul Graves
Look, Naraha, for individuals who do not know, it was inbuilt partnership with Toyota Tsusho, the Japanese distribution arm of Toyota Motor Firm. TOYOTA Tsusho themselves, we have now a — they’re an investor within the Olaroz asset, the previous Orocobre asset down there in Argentina.
They usually have put quite a lot of capital to work. They are a main investor now in Arcadium. They constructed a ten,000-ton lithium hydroxide plant at Naraha in Japan. It is nonetheless in that section of being introduced on-line. I do know you requested a query earlier about ex-China lithium hydroxide vegetation coming on-line and being profitable.
One of many challenges is that in all probability the technically demanding buyer is the Japanese buyer. And so, Naraha has quite a lot of studying to do to deliver itself as much as the purpose that it could in reality produce not solely battery-grade materials however get itself certified into a few of these provide chains. It is nonetheless on the early levels of that. We have seen this ourselves. We have constructed now 5-lithium hydroxide vegetation within the final 5 years, all of us related dimension to Naraha.
There is a little bit of a studying curve to stand up that they are going via for the time being. And it’s operated by Toyota Tsusho, not by Arcadium. So, whereas we’re planning to assist them transfer it ahead, we have not carried out at this time. So, it is just a little bit earlier stage.
Unidentified Analyst
Let’s discuss in regards to the market lots, which I do know you want to speak about. We have now some questions in two. So, a superb query that is right here is so I will learn it. It says, why has Livent/Arcadium seemingly been in a position to maintain contract flooring higher than most friends? Is it product associated, higher phrases, higher prospects, one thing else?
Paul Graves
I can solely converse to what we do. And I feel what we targeted on after we put these contracts in place is a few issues. We put flaws in place that we spent quite a lot of time explaining to the purchasers why we wanted them. They usually’re completely linked to the contractual commitments that we make.
And what do I imply by that? If we put a contractual dedication in place with the client, it’s more likely to be rising volumes over the lifetime of the contract. So, if it is a five-, six-year contract, volumes in yr six look perhaps 2x and even 3x what they had been in yr one. We have made it clear that that requires funding on our half and so we’d like certainty over value to ship on that funding.
And I feel usually talking, we do not attempt to get grasping with flaws. The entire level of a flaw just isn’t for us to earn what I name extreme income. It is to guard us in environments like at this time the place we need to maintain investing and extra importantly, the client desires us to maintain investing.
I feel perhaps a second purpose is we solely do it in hydroxide. Hydroxide is only a essentially completely different product than even battery-grade carbonate. The character of the qualification course of, not solely is it sophisticated to qualify. As soon as it’s certified, the client, the consumer, the cathode printer doesn’t need to swap you out. They’re optimizing their processes for the fabric that you’ve got provided to them.
So, breaking a contract to save lots of a few {dollars} is simply frankly simply not price it for many of them. Not solely have we seen no stress at this time to problem these flaws. To the extent that we’re having conversations with prospects about new contracts and longer contracts which we’re, the failings which are being mentioned are literally just a little greater at this time than they had been after we put these contracts in, which I feel form of displays an acceptance of the purchasers which are doing quite a lot of work that the danger is uneven right here. There’s extra threat of the worth form of spiking than there’s for it staying in a chronic hunch.
Unidentified Firm Consultant
And is {that a} threat now if you discuss to prospects {that a} increase bust lithium commodity, which what we’re seeing for the final short time, that is dangerous as a result of then you are going to see a bunch of merchandise get introduced then get canceled. After which if persons are fearful about safety provide, these issues do not get carried out in a bit — these initiatives do not get carried out in the long run or they get delayed years. Like let me speak about these discussions.
Paul Graves
Look, I feel there’s a complete bunch of it. It is actually sophisticated. One in every of them is what they acknowledge is even when initiatives nonetheless come on-line, why would anyone proceed to maintain investing additional downstream? It is onerous to construct a hydroxide plant. It is onerous to provide certified materials.
They do not need to create a state of affairs the place these of us which have demonstrated the flexibility to do that are incentivized now not to do that. Why not? Look, if the market is all simply going to be commoditized and all the things is pricing off the bottom frequent denominator, why would I make investments extra capital in a tougher course of if I am not getting paid for it, if I haven’t got some certainty round all of it?
So, I feel they’re targeted on the provision of usable product. It is no use to them, frankly, if there’s a complete bunch extra spot focus. Perhaps there is a bunch of Chinese language converters that may do that, however they’re making an attempt to diversify their provide chains.
I’d simply make the purpose that in case you have a big world OEM coming into right into a contract like that with somebody like Arcadium, it is solely part of what you purchase. This isn’t your total portfolio, lithium hydroxide. They’re nonetheless shopping for a bunch of it in in all probability open market functions. And so, they may and so they can take a portfolio method to how they supply their lithium.
Unidentified Analyst
So, I requested you a query on the convention name final week and it was about, how the market — I used to be asking Kent from Albemarle half an hour in the past about this, proper? The way it appears the shortage of visibility proper now out there, it is at all times been a tricky market, however I simply discover like business gamers, individuals that ought to know, producers that ought to know info both counting on one piece of knowledge from one information supplier and everybody use it. The dearth of visibility could be very scary. And thanks for final week you used the phrase as opaque, the most-opaque ever. I used that in my remark. Thanks for that. However perhaps simply opine on that just a little bit. In your lengthy historical past on this house, how why would you say it is the most-opaque you have ever seen?
Paul Graves
Effectively, I feel it is greater and extra sophisticated at this time. And greater than ever all of it runs via China. I feel there have been some fairly significant modifications within the Chinese language market that had been pushed by the spike in lithium costs. And with 5 minutes left, I will perhaps contact on a couple of of them. However I feel one among them has been what we have seen is that this fixed rationalization you see within the China market.
And so, we noticed in ’22 and ’23 quite a lot of stress in case you had been a 2 or 3 Tier battery cell producer to justify your existence. And so, we noticed quite a lot of in all probability what I’ll loosely name speculative shopping for of lithium supplies with individuals that did not actually have a marketplace for their cells.
But when they did not construct them and market them and get on the market, they had been going to be out of enterprise. And I feel that created an actual spike. We struggled to see why value went as excessive because it did. The basics did not assist it.
The second factor that we have seen is this massive development of, on the face of it, irrational lithium manufacturing, lipid-like primarily based, African DSO-based manufacturing. And we see it not being switched off on this value setting. We all know it is in all probability costing between $23 and $30 a kilo.
And I feel the second factor that is occurred, and I feel this can be a little bit of a response to a few of issues just like the IRA however different worldwide makes an attempt to diversify world provide chains away from China, is for China to safe long-term provide of lithium supplies even when it is two occasions the worth of all the things else.
And so, they are not shutting them down as a result of that is captive provide. And so, what it is carried out many of those are owned by cell producers, they’re owned by battery producers. And so, what they’re doing and what they’ve carried out I feel is constructed some built-in lithium provide, which takes out each demand from the market as a result of this isn’t being offered it is simply getting used captively nevertheless it additionally form of locks up one other piece of provide.
And so, it form of briefly shrunk the free marketplace for lithium. But it surely’s additionally actually tough on account of that to get perception immediately into what is occurring with a few of these property. So, I feel quite a lot of this stuff are what’s been inflicting quite a lot of the confusion, the shortage of readability out there extra broadly.
Unidentified Analyst
So, I bought a query from the app. It is — would you anticipate, Paul, to see extra M&A for the sector basically because the lithium costs stay depressed? And what may that appear like for Arcadium?
Paul Graves
I feel it is actually onerous to do M&A, to purchase one thing or promote one thing when it is only a punt on the place the lithium value may go in the long term as a result of who is aware of. And I feel, it is unlikely that you will get excellent threat adjusted alignment between a purchaser and a vendor for money purchases.
I feel the Allkem, Livent merger construction is clearly one of the best ways to do that however I can converse from expertise, they are not simple to place collectively, they are not simple to line up and so they have their very own challenges as to what must occur.
I do consider being a single useful resource lithium firm just isn’t a viable construction in the long term. It is extraordinarily tough to run your small business with only a single useful resource even when it is an built-in one. And so, I feel there will probably be extra stress to be bigger, to have a number of sources in a number of geographies, to have the ability to serve your prospects with a number of merchandise.
I feel that is going to must end in some M&A. I do not know it is easy to do at a low-price setting, simple to do at a excessive value setting. It is positively simpler to do in a steady value setting. And so, to me, value stability is extra necessary than absolutely the degree of the worth.
Unidentified Analyst
So, you have got your first new board assembly developing in a couple of weeks?
Paul Graves
We do.
Unidentified Analyst
Perhaps speak about what the targets for which are? What you assume goes to occur in that board assembly? Or what are you speaking about? What are you guys going to plan out? What do you assume goes to be the important thing factor?
Paul Graves
It is an island, so there will be a lot of {golfing} a lot of Guinness, I’d think about, perhaps not. Island in early March. It is not sunbathing climate. I feel, look, what we’re actually targeted on is what’s the long-term, what’s the suitable long-term technique for a enterprise like Arcadium that’s going to ship essentially the most shareholder worth?
Look, it’s totally simple typically to take a resource-based method and say we have got these sources, we must always give attention to bringing them on-line as rapidly s attainable and subsequently maximizing income and maximizing EBITDA. However we additionally must be delicate to, frankly, valuation multiples as a public firm.
Our purpose is to drive the share value greater. And what is going to this business appear like if we observe varied methods. I feel we have been clear. Livent has adopted a method traditionally of defending our profitability in a downturn. And you may see that at this time.
A lot of the profitability that Arcadium is in at this time’s setting is admittedly legacy Livent. However because the share value strikes up, we go within the different course and far of the rise in profitability that we’re in a position to provide because the market value will increase, which it should, is admittedly pushed by legacy Allkem.
And so, quite a lot of the conversations on the board are going to be, okay, so how will we handle this via completely different environments? How a lot will we contract? What’s the proper technique? Who’re the very best prospects? How a lot threat will we tackle useful resource growth? How a lot threat will we absorb growing extra hydroxide property? What does this enterprise look 5 years from now, not simply 5 quarters from now?
So, it is going to be — this isn’t simply the primary half, that is going to be a dialog our business will probably be having for the following two or three years in my opinion.
Unidentified Analyst
Thanks, Paul. Recognize it. Thanks.
Paul Graves
Thanks.