In the first quarter of 2024, Sociedad Química y Minera de Chile (SQM) reported significant growth with total revenues nearing $1.1 billion and an adjusted EBITDA of over $400 million. The company, trading under the ticker SQM, highlighted a substantial increase in sales volumes across all major business lines, particularly in the iodine and lithium segments.
SQM disclosed a one-time adjustment that affected net profit due to the accounting treatment of the lithium mining tax in Chile. Despite this, SQM remains optimistic about the future, with plans to expand production capacity and a strong focus on meeting customer demand.
Key Takeaways
- SQM announced nearly $1.1 billion in total revenues and over $400 million in adjusted EBITDA for Q1 2024.
- The company recorded a one-time tax adjustment impacting net profit, related to the lithium mining tax in Chile.
- Sales volumes saw a significant increase, with a 30% rise in lithium sales and record sales in the iodine business compared to the previous year.
- SQM is aiming to boost its lithium carbonate production capacity to 240,000 metric tons and lithium hydroxide to 100,000 metric tons by end of 2025.
- The company expects to produce approximately 210,000 tons of lithium this year and sell around 200,000 tons.
- SQM has a healthy inventory across Chile, China, and Korea, with Korea being the most significant market.
- The company plans to increase capacity at the Carmen complex by 30,000 metric tons with an estimated cost of $2,300 per ton.
Company Outlook
- SQM anticipates positive demand trends to continue in the iodine and potassium nitrate markets.
- The global lithium market is projected to experience strong demand growth, particularly from the electric vehicle sector.
- The company is working on the Mount Holland and Andover lithium projects in Australia, aiming for resource estimation and regulatory approvals.
Bearish Highlights
- A one-time tax adjustment due to a dispute over the lithium mining tax in Chile has impacted net profit.
- The company will continue to book tax expenses based on the ongoing legal case.
Bullish Highlights
- SQM reported record high quarterly sales volumes in its iodine business.
- Lithium sales volumes increased by 30% compared to the same period last year.
- Plans to increase production capacity are in place, with less capital-intensive methods to boost output at the Carmen complex.
Misses
- The $1.1 billion tax impact in Q1 2024 is a significant financial adjustment for the company.
Q&A Highlights
- The company is not speculating on prices but is instead focused on satisfying customer demand.
- SQM maintains a healthy inventory and is managing it carefully, especially in the key market of Korea.
- In terms of lithium production, stable prices are expected, with the company aiming to produce at full capacity.
- The MOU with CODELCO is progressing, with the company working towards finalizing the documents and awaiting board approval.
SQM's earnings call provided a comprehensive view of the company's financial health and strategic initiatives. Despite the tax-related setback, SQM's aggressive plans for capacity expansion and its strong position in the iodine and lithium markets underscore the company's commitment to growth and operational excellence.
InvestingPro Insights
In the wake of SQM's recent earnings call, where the company reported substantial growth and strategic initiatives, InvestingPro data and tips offer further insights into Sociedad Química y Minera de Chile's financial health and market position.
With a market capitalization of $13.57 billion and an adjusted P/E ratio for the last twelve months as of Q4 2023 standing at 6.77, SQM is trading at a low earnings multiple. This could indicate that the company's stock is potentially undervalued relative to its earnings, making it an attractive buy for value investors.
The InvestingPro Tips highlight that SQM is a prominent player in the Electrical Equipment industry and has maintained dividend payments for 31 consecutive years, showcasing the company's stability and commitment to shareholder returns. Yet, analysts have revised their earnings downwards for the upcoming period and anticipate a sales decline in the current year.
This is consistent with the reported -30.28% revenue growth for the last twelve months as of Q4 2023, which should be a point of consideration for investors looking at the company's growth trajectory.
Despite these challenges, SQM's liquid assets exceed short-term obligations, and the company operates with a moderate level of debt, indicating a solid financial footing. Moreover, analysts predict the company will remain profitable this year, which aligns with the positive outlook presented during SQM's earnings call.
For investors seeking to delve deeper into SQM's financials and market potential, there are additional InvestingPro Tips available, including insights on free cash flow yield and net income expectations. To explore these further, visit https://www.investing.com/pro/SQM and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 10 more InvestingPro Tips listed in InvestingPro, investors can gain a comprehensive view of SQM's financial health and make more informed decisions.
Full transcript - Sociedad Química y Minera de Chile (SQM) Q1 2024:
Operator: Good day, and welcome to the SQM First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded. I'd now like to turn the conference over to Irina Axenova, Head of Investor Relations. Please go ahead.
Irina Axenova: Thank you. Good afternoon, everyone. Thank you for joining SQM's earnings conference call for the first quarter of 2024. This conference call will be recorded and is being webcast live. Our earnings press release and the presentation with a summary of the results have been uploaded to our website where you can also find a link to the webcast. Ricardo Ramos, our Chief Executive Officer will be speaking on the call today. Carlos Diaz, Executive Vice President of Lithium; Mark Fones, Vice President of Lithium Development and M&A; [Max Vial] Lithium Market Intelligence Director; Pablo Altimiras, Executive Vice President of Nitrates & Iodine; and Juan Pablo Bellolio, Commercial Vice President of Iodine & Industrial Chemicals are also available to answer any questions. Our Chief Executive Officer, Ricardo Ramos, unfortunately couldn't join the call today. Before we begin, I would like to remind you that some statements made during this conference call regarding our business outlook, future economic performance, anticipated profitability, revenue, expenses and other financial items are considered forward-looking statements. Please note that the same cautionary language used in our press release and presentation also applies to this call. And now I will leave you with our Chief Financial Officer, Gerardo Illanes.
Gerardo Illanes: Thank you, Irina. Good afternoon, everyone and thank you for joining us today. As you may know, we reported our first quarter 2024 earnings result yesterday. On this call, we will be discussing the key drivers behind these results and sharing our outlook for the year. Our total revenues for the first three months of the year reached almost $1.1 billion with an adjusted EBITDA of over $400 million. Our net profit was impacted by a one-time to adjustment related to the accounting treatment of the lithium mining tax in Chile from previous years, adding up to almost $1.1 billion as of March 31, 2024. This is not having a significant cash impact since the majority of this amount close to $930 million was paid in prior years. During the first quarter of this year, we delivered strong growth in our sales volume across all of our major business lines, reporting record high quarterly sales volumes in the iodine business, positive sales volume recovery in the fertilizer business and almost 30% higher lithium sales volumes compared to the same period last year. This growth helped partially offset the impact of lower average prices realized for the first quarter 2024. In our nitrates and iodine business unit, we are proud of the results of the ramp up of Pampa Blanca project, which is expected to reach approximately 1,300 metric tons of new iodine capacity this year. Also a few months ago, we began the construction of a seawater pipeline, which is expected to be completed in 2026. It is an exciting development, but it's also a challenging project, almost 38 kilometers long with a total elevation of over 1,000 meters running from the Pacific coast near the City of Iquique to our Nueva Victoria operations. Once completed, the pipeline will have a capacity of 900 liters per second and will allow us to expand our production capacity even further while delivering fresh water to some neighboring communities. We have seen positive demand trends in the iodine and potassium nitrate market since the beginning of the year. Our outlook is that the iodine market demand could grow by approximately 4% this year, approaching 2022 levels. Our iodine sales volumes are projected to increase in 2024 compared to last year, with an expected stable average sales price with a possibility of a slight upside. We are similarly optimistic about the potassium nitrate market outlook with expectations of up 15% growth in the demand this year. Our sales volumes are also anticipated to follow a similar pattern. Potassium nitrate prices have been relatively stable over several quarters and we believe this trend could continue for the remainder of the year. In the lithium business unit, having completed expansion of our lithium carbonate capacity in Chile to 210,000 metric tons, we're now focusing on a series of initiatives that should allow us to increase this capacity to 240,000 metric tons by the end of the year, mainly through process improvements, increased quality and efficiency of the existing production facilities. Our lithium hydroxide capacity in Chile has reached 40,000 metric tons per year and we expect to complete this expansion to reach 100,000 metric tons per year during 2025. In China, we completed the modification of the Dixin lithium hydroxide conversion facility with a total capacity of 20,000 metric tons per year. This project represents years of innovation and development of a chemical facility to refine lithium sulfate produced in the Salar de Atacama to battery grade lithium hydroxide. At the same time, we have reached agreements to toll approximately 20,000 metric tons of lithium sulfate coming from the Salar de Atacama into lithium hydroxide in China. All of this together with the initiatives we're working on in Australia should let us reach a total production capacity of more than 300,000 metric tons of lithium products by the end of 2025. Turning to broader lithium market. We have observed some encouraging trends during the first month of this year. Strong demand growth have been driven by electric demand market, mainly in China, which accounts for almost 75% of global lithium demand. We anticipate that the total EV sales could reach 17 million units by 2024, representing a 22% increase from 2023. And total lithium demand could exceed 1.1 million tons in 2024, representing a 20% increase compared to the previous year. Given this demand growth, we have anticipated our sales volumes outlook for this year, expecting to sell close to 200,000 metric tons. The expected growth in global lithium supply this year could be up to 30% compared to 2023. However, given current lithium prices, the expected supply from high cost producers could be affected, providing some price stability as has been seen since February this year. Before concluding and opening the line for questions, I would like to ask Mark to share with us some of the recent developments in our lithium initiatives abroad.
Mark Fones: Thank you, Ricardo. Good afternoon, everyone. From an Australian and internationalism perspective, for SQM it has been a very eventful and exciting start to 2024, with spodumene concentrate production commencing at the world class Mount Holland lithium project jointly owned with our partner Wesfarmers and the completion of the Azure Minerals acquisition with Hancock prospect. We are very fortunate to now have access to two globally significant, which we are progressing with two equally significant Australian partners, Wesfarmers and Hancock Prospect. Moving first to Mount Holland, last year we commenced production at the newly constructed mine and concentrated facilities, exporting our first shipment of spotty main concentrate this month to be tolled in China. During this calendar year, we expect to produce a total of between 120,000 and 150,000 metric tons of spotty main concentrate, that's SQM's share and to total close to 5,000 metric tons of lithium hydroxide. However, given the timing of tolling and quality certification requirements, we do not anticipate seeing these volumes on the market until the end of the year. In the meantime, work continues on the Kwinana Refinery with construction of our 50,000 tons per year facility at about a 75% to 80% complete and expected to be in production by mid next year, following commission later this year. We will keep progressing with studies and environmental approvals for the Mount Holland mine and concentrator expansion, which would effectively see Mount Holland doubling its polymeric concentrate production facility after FID is taken. Moving now to the recent acquisition of Azure, which owns 60% of the Andover lithium project in Western Australia also concluded this month. Together with Hancock prospecting, we acquired all the outstanding of Azure Minerals Limited and jointly become owners of 60% of the Andover Lithium project. This significant investment by SQM further highlights our belief in Western Australia as one of the world's prominent hard rock lithium mining jurisdictions. We're extremely happy with this acquisition and with our new partner, Hanko, who will provide excellent project development and mining expertise in Australia to complement SQM’s market leading lithium knowledge. We believe our business model of partnering with great local companies to discover and develop Tier 1 lithium assets, places SQM in a prominent position in the global hard rock lithium market. In 2024, we will continue to work -- the good work that Azure has done and towards the resource estimate for Andover project as well as providing additional capabilities, continue with studies and regulatory approvals activities, as well as product definition and project development. While work still needs to be done to finalize this resource estimate, we are certainly looking at a deposit of global significance. Outside of these two major projects, as you may have seen in our public announcements, we continue to work on monitor and invest in various early stage exploration projects in Australia with the aim to finding new high grade lithium prospects with the potential for scale. Irina Axenova Thank you, Mark. Operator, we will now open the lines to questions.
Operator: [Operator Instructions] Today's first question comes from Ben Isaacson with Scotiabank.
Ben Isaacson: So I have three questions. I'd like to ask them one by one, if that's okay. First question is, I noticed in your presentation that the plant in China in Sichuan Dixin, it's increased by 10,000 tons. It was 30,000 last quarter and now it's 40,000. Can you just explain that, please?
Carlos Diaz: This is Carlos Diaz. Yes, our capacity in China is 20,000 metric tons in the Sichuan Dixin plant. And the other 20,000 we're going to produce starting from lithium sulfate by way taller. So in total, it's going to be 40,000, but 20,000 for our own factory and other 20,000 for taller. But both are coming from lithium sulfide.
Ben Isaacson: Second question is on the Azure acquisition. So you have a 50% stake in 60% of Andover, if that's right. Can you just talk about what next steps are for the project over the next 12 months or so, CapEx spending? And what should we expect to hear from you over the next year?
Mark Fones: Yes, you're right on the math on the acquisition of the -- at the end Andover Lithium project, it's 50% of the 60%. So regarding next steps, as I mentioned, we are now aimed in three main things is a resource made an estimate, driving more detail into what was already advanced by the Azure team. As you know, Azure issued an exploration target, which was a deficiency in between 100 million to 140 million tons of mineral at between 1% to 1.5% lithium oxide content. So the main resource estimate will give us a more detailed view on that. At the same time, we are advancing on regulatory approvals, which usually in this case of capital investments in the resource industry, a critical path is aimed to those regulatory approvals. So we are advancing on those as well as starting pre definition with our partner Hancock. So for the future and the short-term future, you won't see any capital requirements driving from Azure in next steps of development yet until we move into the DFS and FID.
Ben Isaacson: And just my final question in the iodine market. So the price was around $70 or so, and it's kind of it slipped back a little bit down to the mid-60s. Now it looks like things are strengthening again. Can you just give an overview as to where we going over the next two or three years? It seems like there's not a lot of supply coming on and demand growth remains really resilient even in a weak kind of macro market. So does this tightness continue over the next couple of years?
Juan Pablo Bellolio: This is Juan Pablo. Well, talking about the iodine market, as we mentioned in our release, we are seeing a recovery in the demand compared to last year. Last year went down about 4%. Now we're looking at growing again this year. That's why we believe the price is going to stabilize. And talking about the next two to three years, the drivers of the demand are still the growth of the contrast media industry, the LCD market and other healthy purpose of the iodine. So we see that demand growing. Maybe not at the 4% that we are going to see this year but still growing. And on the same time, we expect that new supply may arrive to the market. We know that some competitors have made some move to acquisitions for old projects that should be online in the next couple of years.
Operator: And our next question today comes from Joel Jackson with BMO Capital Markets.
Joel Jackson: I also have three questions, I'll do one at a time. First question is, it was very clear a few months ago, it's happened before the SQM that you were going to produce a bunch of lithium, the market may not be able to take it and you would build inventory without the tons for later, which is you do that for a lot of reasons. But usually what happens is you sell the tons anyways. So the decision not to build inventory or as much inventory into our lithium price market has been pretty flat in the last few months. Is that -- explain that decision commercially. Is that a view you expect lithium price to be very stable here and so no point to hold inventory back?
Carlos Diaz: This is Carlos Diaz, again. Well, as always, our strategy is to produce at the full capacity and expanding in line with the expected market growth in order to be always prepared to serve the need of our customer. You know that the lithium price hit bottom level in China by the end of February '24, after we have served a quick recovery of almost 10% until mid-April. And for several weeks after that, price fluctuation were quite moderate, potentially indicating more stability for the rest of the year. So the outlook for the rest of the year will depend, as always, on the supply and demand balance.
Joel Jackson: You talked about capacity reaching 300,000 tons at the end of 2025. Let's call that a production level for 2026, if you choose to produce that full utilization as you just mentioned. If you can hit capacity of 305,000 tons at the end of 2025 and you were to run full out, what does that mean for actual production volume in 2025? Obviously, 305,000 tons is the capacity at the end of the year.
Carlos Diaz: Well, this year, we expect to produce around 210,000 that is according to our capacity in Chile that where it was mentioned by Gerardo and the capacity that we have in China and additionally in Australia. But for next year, we're still reviewing that. But what was announced it was $250 million this year. It was $240 million in Chile, sorry, and $40,000 in China. So $280 million next year. That is going to be the same capacity. Yes, that is going to be the capacity and $305 million in the year 2025. How much we're going to reduce? Well, we'll have to see, obviously, how is the market, how the customer need and so on. But I will always expect to sell according to our capacity. I mean, it should be close to that.
Joel Jackson: My last question has to be asked, it's kind of a two part. So what is the last sticking point on finalizing this MOU with CODELCO, which you said is going to happen within a week here end of May? And then CORRADO and team, how concerned are you that Tianqi is going to use its legal options to force a shareholder vote? And then are you preparing for the potential that if any complicated and complex outcome that you will get their Tianqi stake put it to you? How are you preparing to possibly handle this financially?
Gerardo Illanes: This is Gerardo. As you can imagine, the deal with CODELCO is quite a complicated deal with a lot of details. And we have been working really, really hard to meet the deadline. Last year, we had the deadline to issue something by the end of the year. And at the end of December, we issued this MOU. And now we're working to make sure we have all the contracts finalized by the end of the month, and we keep on working on that. There is no particular stitching point as you ask is just that is our complicated transaction.
Joel Jackson: Now on the Tianqi shareholder vote, are you preparing financially to be able to have to protect yourselves in the chance that in a very complicated legal situation Tianqi puts its shares to you?
Gerardo Illanes: I mean the transaction, I say it was asked at the beginning of this year to the CMF has to be approved by the board. And we're planning that it will happen this way. And then once the contracts are signed, we will proceed with all the details to have the JV ready by the beginnings of next year. But we're not planning for anything else as the process should go as the regulator instructed.
Operator: And our next question comes from [Gabriel Samos] with Goldman Sachs.
Unidentified Analyst: So my first question will be on the lithium expansion. So given the increased capacity guidance that you gave for '25, I'm sorry. We'd like to understand where these investments will be made. So basically, you already mentioned the 10,000 tons additional in tolling in China, but we'd like to understand what would take for you to get to the increased 30,000 tons capacity in Chile, right? So if you need additional investment to get to that capacity, does it only need improvement in terms of efficiency? Or does it require investment in more refining capacity as well? Just to understand how close you are already to your capacity in terms of refining and in terms of right extraction. So that's the first question.
Carlos Diaz: Well, it was already explained a little bit by Ricardo. In the last year, we have been focused to increasing the capacity in Chile as a lithium carbonate and now we're focusing in increasing it as a lithium hydroxide. We already reached a capacity of 210,000 in lithium carbonate and now we are working to adding and to focusing on the bottleneck of area of carbonate line and increasing the lithium recovery. These initiative have a lower CapEx intensity, when compared with the new production line. So it's not significant as it was when we're building new lines because more focusing the bottlenecking. And we're working obviously to keep it increasing in future, now the lithium hydroxide and they need to reach 100,000 metric ton, let's say, at the last quarter of the next year. I don't know if that answers your question.
Unidentified Analyst: It does. And I have just one more question on the lithium cost. So a few quarters ago, you mentioned that you'd start to focus on increasing the efficiency in production. So not only to increase production, but also in terms of costs, right? So in this quarter, the cost that you reported was already better than our estimate, but we just like to understand what is the sustainable level of production cost that we should see for SQM's lithium production in the future, particularly in the Salar de Atacama, right? And when you would expect to get there given the initiatives you are making right now?
Carlos Diaz: We expect the future cost as stable on the same level that is today. We expect to reduce, obviously, because we are increasing capacity and gaining synergy. But for the other side, we have, I don't know, higher cost because we are -- with the focus to boost higher quality. So always, you have more cost when you try to get in a better product. So as a summary, I would say, it's going to be a stable cost compared to what it's been this year and last year.
Operator: And our next question comes from Corinne Blanchard with Deutsche Bank.
Corinne Blanchard: I have two questions. The first one to come back maybe on the MoU and T&C situation. So let's say you get the MoU finalized and signed at the end of the next week. Basically can T&C continue creating some issue around this? Or would like, if you sign the deal next week, would that just seal the deal and basically kind of order regulatory affair that you have had issue with? Would that go away?
Gerardo Illanes: This is Gerardo. Well, we are working on the final documents on this agreement with CODELCO that was described on the MoU that was published at the end of last year. The approval process on our end was discussed or was asked to the regulator in Chile, the CMF, at the beginning of the year. And the regulator was quite clear on the way this has to be approved, which is at the board level. So once the contracts are ready, the board will meet, will review the details of the contracts, and we'll take a decision. On the CODELCO side, to be quite honest, I'm not that familiar on how the process goes on their end to get the approval steps, but this is what should happen on our end.
Corinne Blanchard: And the second question would be, what do you see, like, industry wide in the channel, like, in terms of inventory? Are you seeing again your restocking move happening or is it still like a static?
Gerardo Illanes: We have a healthy inventory. If you see this year, we expect to produce to 210,000 and to sell 200,000. So only we will have to have more inventory in the chain because we're increasing the sales, and we want to have enough inventory for supplying to our customers. We have inventory in Chile, in China, a lot of inventory there because obviously our main sales, more than 70% of our service is done in China, we have a different warehouse. And in Korea, I think I would say that that's the most important place where we have inventory. We are in a healthy position now of inventory, and we want to keep it in that way. We are not speculating with the price and so on. We just said what the customer need and according to our production.
Operator: And our final question today comes from Cesar Perez-Novoa with BTG Pactual.
Cesar Perez-Novoa: Regarding the $1.1 billion tax impact booked in the first quarter of 2024, must we now assume that going forward our estimates must now include a higher mining tax? Is this reasonable to assume for the quarters ahead? And my second question is actually more clarification for the incremental 30,000 that you plan to increase in the Carmen complex by 2025? You just mentioned that you will manage to achieve this via higher recovery, which is less capital intensive. Can you comment how much less intensive this is on a per ton basis? And is this already included in the $1.3 billion CapEx you reiterated in your press release for 2024?
Gerardo Illanes: This is Gerardo. Regarding the one-time tax hit on the first quarter is related to the interpretation that the tax authorities have on the lithium mining tax, where they understand that it's subject to mining tax. The lithium is subject to mining tax and we are of the understanding that it's not. We have had this dispute for a few years. It has been described in detail on our financial statements. But because of the ruling of the appeals court in April, we have changed the accounting treatment of this tax, which by the way has been paid by the company every time we have been invoiced by the tax authority. So that's why it doesn't have a significant cash impact on our balance sheet. Now going forward, the treatment of these tax payments should continue to be exactly the same as it is today or as it was reflected on the first quarter financial statement as a function of the mining tax in Chile. To give you an idea, the impact in the first quarter, which is again a function of the price of lithium and the profitability of the business was approximately $8 million. Going forward, we will continue to book that as tax expenses depending on, of course, how the legal case continues.
Carlos Diaz: Well, as I mentioned before at the beginning, we were focusing on increasing the capacity, adding the new lines. After we finished that now we are focusing on the bottom negative area, where we expect if we increase those equipment or unit, we can easily increase the total capacity of the same plant. There is no new lines, just doing the bottom of those areas. So that is what we estimate, let's say, 70 million could be a little bit more, but a range around that and to gain another 30,000 metric ton. If you do the math, it's around $2,300 per tons. But just because it's a level negative asset you cannot ask me to produce and to increase more the capacity with the same cost.
Operator: And this concludes today's question-and-answer session. I'd like to turn the conference back over to Irina Axenova for closing remarks.
Irina Axenova: Thank you, everyone, for joining today, and we look forward to having you on our next call. Goodbye.
Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
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