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Sigma Lithium Corporation (NASDAQ: SGML) Third Quarter 2023 Earnings Call Transcript, November 15, 2023
Operator: Have a nice day everyone. Welcome to Sigma Lithium’s third quarter 2023 earnings conference call. Today’s call is being recorded and streamed on Sigma’s website. [Operator Instructions] Please note that this occasion is being recorded. Now I’d like to turn the floor over to Matthew DeYoe, Executive Vice President of Corporate Affairs and Strategic Development at Sigma. Please go ahead.
Matthew DeYoe: Thank you, Jason. Thank you for joining us on our third-quarter earnings call. Today I’m on the call with the company’s CEO, Ana Cabral. This morning, before the market opened, in fact, last night, we released our third-quarter 2023 currency effects, as well as the SEC filings. Before I begin, I would like to make two points. First, in the filing, you will hear certain forward-looking statements relating to our plans and expectations. We note that actual events or effects may also differ materially from changes in market situations and our operations. In addition, the benefits referred to in this presentation would possibly exclude certain non-essential and non-recurring items. Reconciliations to more comparable GAAP financial measures and other similar information, including descriptions of adjustments, are found at the end of this press release. With that, I pass on the call to Ana. Ana?
Ana Cabral Gardner: Yes. Thank you, Matt. Well, first of all, it’s exciting to be here with all of you to bring you our monetary effects for the third quarter of 2023. We are excited to deliver our first operating quarter and have been successful from the start. . With that, I’ll jump straight to the first page with the operational highlights. Well, we’re a big producer now. We are a smart force in the lithium industry. And we have almost achieved what many imagine impossible. We supply lithium with no carbon or residue, produced without poisonous chemicals. We necessarily produce the most productive product in the lithium industry in terms of concentrating. We have been able to do so, with a very successful increase.
As you can see, our Greentech plant has achieved 90% efficiency. We ship 20,000 tons of Triple Zero Green Lithium concentrate every month. Our fourth shipment is expected until the end of November, with a minimum length of 20,000 tons. In fact, I just returned from almost two weeks in China, in Chengdu, in each and every place, where we saw on the floor the fantastic receptivity of our product in terms of how it behaves throughout the refining process. We’ll communicate a lot more about that. As a result, we are moving forward with the detailed engineering of the expansion. I mean, there’s not enough material to meet the demand for what we bring to the table. Therefore, the variety of design engineering is related to the conclusion. of the strategic review.
Based on the strategic review, the spouse of the selection or the winner of the selection, we will choose an engineering company. But we look forward to our expansion because we can almost sell each and every gram of this product. And there’s more. There will be a lot more of that lithium. We also achieved a really extensive prospective accumulation in the mineral resource during the quarter. We have phase four, which will be about 30 million tonnes, and then phase five, about 20 million tonnes. more. Therefore, we expect Sigma’s overall mineral resources, Phases 1 to 5, to reach 130 million tonnes. With that, I’ll move on to the next page, the financial highlights. All financial targets have been met. We have been successful since the first quarter of operation, which means we have an incredible degree of operational power and discipline.
We are the second cheapest lithium concentrate manufacturer in the world, which means we can thrive in any environment with lithium prices. And that’s the key message of these policies. We are consolidating our position as the second lowest priced lithium concentrate manufacturer. It is the result of enormous monetary discipline. I mean we are successful and we also have a product of the highest quality. I mean, we’re doing things that no one else is doing, like not having a tailings dam, and we’re delivering carbon emissions. Free lithium. And in spite of this, we succeed and carry little. This necessarily demonstrates our resistance to lithium cycles. We will try in any pricing environment for the product. And depending on the direction of the cycle, we even have the opportunity to capture a percentage of the market with this Triple Zero lithium.
This drastic selection framework for all downstream customers, up to car manufacturers, who buy batteries for the European Union. All of this is preparation for the European battery adventure until 2026, regardless of the world where those batteries are produced. . Some highlights from the numbers. We reported third-quarter earnings of $96 million. To date, we have also produced 71,650 tons of this high-quality product. The lower product represents 100,000 tons. We also generated adjusted EBITDA of $54 million. Our constant cost unit, FOB port, is $577 per ton. And we have a very strong net profit source of $36 million in the third quarter. Therefore, it is very profitable, with significant money and recurring money generation. The next slide shows our production highlights.
We have Triple Zero lithium as an advertising success. In other words, there is rarely enough of our Triple Zero green lithium to meet demand. Some of the highlights of the third quarter and production to date. We produced 38,500 tonnes of this triple green lithium 0 at 5. 5%. Cumulative production to date is 71,650 tonnes. We have also effectively developed the Greentech plant without tailings dam, which means we have 62,000 tonnes of triple 0 green by-products, compared to 100,000 tonnes of triple-0 green by-products since the beginning of the year. The next purpose will be to plant recoveries at the design level, which are necessarily global recoveries, adding up to ultrafine losses of 65%. We have 3 shipments for sale. We have a fourth expedition on the way, which will leave at the end of November.
The scale for this shipment will be around 20,000 to 22,000 tons, which means that we maintain our forecast because between all our products we are going to achieve 130,000 tons of equivalent profit of triple 0 green lithium and by-products. So, for a company that only has one producer, that is getting there, that has controlled its expansion, if you multiply 22,500 by 12, that means that we got there. 270,000 tons are obtained per year. In this way, the mill work, dry stacking work, and final product waste were effectively sold commercially. There is an impressive demand for this product, given its purity. And in the symbol to the right of this slide you can see the third module, which only Sigma Lithium has controlled to achieve.
Ultra-fine dry stacking at 12%. So here we are delivering on our promise to make this source chain much more sustainable and pave the way for the carbon-free battery. The next slide shows resilience. This shows that Sigma can make money in the final part of the lithium cycle. In other words, our costs are low, and as a result, we generate consistent profits in giant volumes, whether in the private sector. products and in the main concentrate. Most importantly, because our costs are among the lowest in the industry, we are able to maintain this operational resiliency and make money no matter what. So we have in front of you a simulation that seems hypothetical that lithium costs for concentrates reach 1,500.
But thanks to our low costs, we can generate significant money generation, either for Phase 1 or also with the expansion. And then there are the by-product credits, which we keep separate just for the sake of transparency and clarity. . Now, why do we have such low costs? Well, basically, because of the decisions we made at the beginning of development, we chose dense media separation, DMS. And the most sensible thing about that, we’ve been powering with very, very reasonable renewable energy. So, the combination of a simpler flowchart and reasonably priced renewable energy lead us to those dramatic effects early on in our first quarter with finances. So, we’re obviously incredibly proud of what we’ve accomplished here. Another attractive point right now: in the next slide, we’ll show you why.
I mean, the product is really better. So, despite our selection of a dense separation of media, what at the time seemed like a completely exclusive and riskier selection. We really brought it back into the industry because it preserved the integrity of the mineralization of the product and allowed us to be delivering this amazing impressive quality. It’s visual. When you look at the slide, the next slide, with the quality, we have exclusive products that are top quality, maximum purity, and coarse grain. So, you don’t even want lab research to determine that the coarse product is different from the ultra-thin product produced through our peers. And then, there’s a lot: soft green, so purity, so our purity matches [Taliesin] and the green bushes. Then you look down, you have inferior products, which are the powdered product. With-loaded iron oxide and other impurities, including mica.
So it’s a picture worth a thousand words. And this product saves consumers up to 30%. The next page talks a little more about the quality, the low charge and that enormous competitive merit, which translates into advertising success, but also about the low charge and resistance to the lithium cycle in terms of generating spare change. Essentially, high purity chemistry, Triple Zero, weaker alkali, here you see low iron oxide, low mica and then low alkali, which are potassium oxide and sodium oxide. The product By Therefore, it is larger and is also environmentally competitive, which is a merit for batteries connected to the European Union. And again, back to this, the batteries are produced throughout Asia, the cells, and they are shipped. to packaging plants in the European Union.
We have great merit when we supply this product to mobile brands in South Korea, Japan, China and all over the world. Why is that? The next slide shows the fee relief calculations for consumers. We provide significant fee savings to downstream consumers. This is very important, especially in a tight market, where downstream players are looking to reduce source chain costs, especially those of refineries. So when you take a look at the slide here, you can see that there’s a potential of up to $6,000 per ton of hydroxide downstream, for the refiner, which is part of a downstream origin chain, which is a toll, which is 26% more according to margin for the refiner or the battery manufacturer that goes through the refiner. And that’s Sigma. We’re working with Glencore and its consumers to bring this product to market.
Therefore, even at a lithium hydroxide price of 9%, our premium lithium concentrate can generate measurable savings for converters, downstream of the current market, which is a huge competitive merit in terms of quality and use value. I emphasize this point just to demonstrate how much Our product has a priority, because we achieve chemical, physical, technical, and measurable load savings and supply the maximum productive or durable Triple Zero lithium product, and we don’t qualify for it. , a low-chemical environment is free, rarely is?So, this is a fantastic feature for consumers who make their sales in the European Union. On this slide, you’ll find a desirable workout we’ve done. In other words, our product will be in demand at high prices due to its chemical properties.
This table compares the margins our consumers would get compared to buying the competitor’s product in the spot market. Obviously you can see the gains. The spot margin in light green is lower and Sigma’s visitor margin of even 9% is higher. For what? Because the 9% premiumization doesn’t reflect all the savings made through the visitor. So it’s a win-win situation. That is why the demand and acceptance of the product has been so spectacular. I mean, I was in China for almost two weeks. I brought all my [technical difficulty]
Operator: Forgive me, everyone. It appears that the speaker line is disconnected. Please wait while we log back in. Thank you for your patience. Thank you for your patience. We have reconnected with stakeholders. Ana, can you continue, please.
Ana Cabral Gardner: Yes, I was accidentally disconnected. I was talking through the slides where we have the graph with the proven efficiencies that are driving the demand for Sigma products in any market. And I think basically, at the conclusion of this slide with this graph, comparing the high-end product that generates measurable efficiencies for the visitor, you can obviously see why consumers with the spot – today’s visitor has two options: buy the competitor’s product in the spot market and buy the Sigma product at a premium price. price. This is the graph that everyone sees on the screen now. And we’ve shown you on a chart that our consumers are getting higher margins, no matter what. In other words, when you buy Sigma’s product, you do better.
Basically, that explains the advertising good luck we’ve had in this industry. And our sales team is still camped out in China, basically working with our partners for the low-quality ultra-fine concentrate and with Glencore for the high-quality concentrate. Quality Triple Zero concentrate, and the reaction has been dramatic from car manufacturers, battery manufacturers, the sun or the refineries themselves. That’s why we’re very proud of what we’ve built. We are very proud to have been able to deliver a product that is not only the leader or environmental benchmark. It’s common, it’s like 0 carbon, nobody’s doing this, a 0 tailings dam, and we don’t use harmful chemicals. But we also own physical and chemical housing that meets customers’ pricing needs. .
There you have it: I have raised this point several times to explain that we do not have a call for challenge because we, Sigma, will position each gram at our price, taking into account all those competitive merits and those use values. The next page shows the summary of everything I’ve said, where does that leave us?Well, that gives us enormous competitive merit in the production of mobile devices: for batteries to be packaged in Europe or for cars to be sold in Europe. As you know, its battery-powered mobile factories are located all over the world, in China, Japan, and South Korea. And at the moment, they are sending the phones to battery packers that have their European factories. This packaging, which is being positioned in Europe, is then aimed at car brands located in Europe.
So, the source of the cells, the tracking of the cells within the battery manufacturer is taking a stand lately as we speak. And Sigma, our Triple Zero Green Lithium is a recognizable brand. Customers are asking for it. They need to have our team. They ask their swallows for our materials. That makes us very proud. And then when you take a look at the position of the European car market this year and our production this year, you can obviously see that there aren’t enough products of ours just to meet the European demand, which is fantastic. I mean, remember, again, CATL, LG, SK, Panasonic, they were all founded elsewhere, but they’re making the cells that European cars will follow. And that’s the path ahead for batteries through 2026, and origin chains are gearing up as they go. Talk.
So, the next page, some Triple Zero Green Lithium. That has been our goal, our motivation as investors, as consistent interlocutors, as leaders, as partners here. That’s what we made the decision to do. This means enabling best-in-class carbon intensity for batteries and, in the end, enabling the holy grail of carbon-free batteries when it comes to lithium. In other words, the lithium hydroxide chemical manufacturer in China today, if it is the best in its class, i. e. , employing plant fuel and renewable energy, can have a total carbon footprint of only 2. 5 tons of carbon per ton of lithium hydroxide. In other words, it’s very simple to solve this challenge with carbon credits, because this is the best in its class. It has done its homework by replacing coal fuel with herbal fuel and replacing coal-fired power with renewable energy.
So with our curtain, which is 0, you end up in a fantastic position when it comes to relief: maximum carbon relief through carbon credits. Once again, we have enabled the carbon-free battery for lithium as much as possible. As far as lithium curtains are concerned. The next slide, I’ll temporarily pass it on because you know it so well. Triple Zero, 0 carbon, 0 chemicals and 0 waste. The key elements are waste recycling and dry storage. We practice tailings extraction because we remove all tailings. We sell the by-products at a value that is 10% of the value of the main products, which is a vital point. Water, essentially we reuse all the water. We get our water from wastewater, then it’s wastewater that comes in, it’s treated in our water treatment plant, to fit it into the Greentech plant, and we end up with a closed formula of completely reused water.
And most importantly, we forced the factory hard into white. Clean energy in Brazil costs $0. 02 or $1 per kilowatt hour. I mean, it’s the cheapest and lowest charge in the world. Except in the Middle East where it is subsidized. So here we are in a fantastic position in terms of renewable strength, less than anywhere else. It’s part of the value in Canada. So with that, I’m going to get to work. Update on consistent national and resource expansion, that’s the next page, let’s move on to the next section. The next slide deals with the successful implementation of dry storage. Here we show that we have managed to place at most the dry stacking in a consistent state. And when you look at this chart, we’ve noticed some spikes. We have separated in the graph the component of the period consisting of which we successfully launched dry stacking by delivering ultra-fine stacking: dry stacking with 12% moisture, which means that we were able to increase production from the separation of dense materials. media.
So obviously you can see us achieving stability in recoveries and, again, achieving the degrees of functionality that we strive to achieve. So for everyone, the yield is the amount of each ton of ore that goes into this process, the crushing of module 1 becomes the final product, it becomes the Triple Zero lithium concentrate, the main product. The recoveries dictate how much lithium we actually recover from the materials, so we’ve gotten our productivity, right? In other words, as we calibrate the For a plant to be successful at the target production volume, lithia recovery is the link to volume. So, here at Sigma, we have a very big problem, because we have to work to reduce the content of the lithium concentrate to 5. 5%. As you probably remember, our first expedition was above 6%, which is an ideal operational calibration.
And that’s because we start by entering the processing plant with excellent quality raw materials. So as we do that calibration to the popular grade of the 5. 5% lithium oxide market, we get yields and recoveries that increase dramatically, as is possible. see on this slide. Again, very, very, very proud of what our consistent on-site operations team, our two general managers who manage the mining plants, have accomplished. And we continue to improve. Lately we’re installing a magnetic separator on the ultra-thin circuit, which will give us a boost in recovery, but the work is there. We’ve done that. With 22,500 per month, multiplied by 12, we are already annualizing the line’s capacity to 270,000 tons. On the next page, maintaining the ranks through a successful national integration.
The next page essentially shows that there are no gimmicks here, right?As we said, our goal has been to reduce the score to 5. 5; You can see that the score is clearly above 5. 5. We don’t get paid well for offering the best quality, as the industry provides a score of 5. 5 and below. So the challenge is to bring it down to 5. 5, which is, again, a very high quality product, a testament to the quality of our raw material. Another vital point on the slide is that we don’t do what’s called a degree of height, which is moving into rich spaces of the reservoir just to speed up recovery and then revel in that in the year in question. No, we don’t. If we look at the right axis, we can see that the most sensitive content has remained constant between 1. 4% and 1. 46%.
This is the diluted feed that we showed in the feasibility study. Incredible consistency in food, which shows that the challenge is to keep quality low, necessarily between 6% and 6. 5%, so that we can offer qualities that are in line with the market rather than surpassing them. market and not They are well compensated. The next slide, slide 18, shows that we are moving on to expand. The detailed engineering of the FEL-3 enters this final phase. We make the final quote. As we conduct a strategic review, the range of engineering contractors will depend on the winner, Sigma’s next gateway. Each of them has their own point of view, this can happen to a design company from the East, which has built large-scale transmission and generation lines – a power generation scheme in Brazil – very effectively and at very low prices. cost.
We will finance it through debt and through our operating cash flow. And the goal is to triple production by next year. For what? There is a market for each and every gram of this product. There simply aren’t enough of them to meet the demand, and that’s only if you consider the cells connected to the European Union. Now there is blockchain, which traces the chain of origin, and we bode very well for this trade. As I said before, our product has become a brand. And obviously here on the map you can see how simple it would be to scale it up, given that most of the preparation of the infrastructure of the commercial site has already been done. The next slide will show our ability to increase production organically. How big can we become? We have just disclosed that our mineral resources, Phase 4, Phase 5, amount to 130 million tonnes.
Therefore, there are 50 million more tons floating around in stages four and five. Therefore, we can easily think of another line. And this line to potentially integrate, again, will have the winner of the strategic review. And back to the engineering point, I need to be clear. Promon will provide and manage the actual structure in Brasil. De what we’re talking about is some sort of brain control engineering combined with Sigma’s strong proprietary team, because we’ve already built one. In it, all the engineers who built it now work with us as part of a team of owners. So that would be the case: what would be the foreign engineering company that we would associate with Promon to our in-house owned team, right?And again, what we’re looking to do is to achieve optimal structure and optimal profitability of plant expansion.
Finally, in terms of this ability to increase production organically, this slide shows that either one is accelerating, that’s how we’re going to look at it. So if you look at the slide on page 19, you can apparently see that. In others it is that we have phase 1, and then we are going to have a link, that is, two stages built at the same time, two line trains built at the same time, which will take us to 766,000 tons; and then, prospectively, a fourth line. This is the apparent strategic choice. I mean, it’s just an apparent strategic choice. In other words, by intensifying our efforts, we will be great. We are a smart force in the industry. We are one of the next major lithium generating companies, with a prospective production of more than 100,000 tonnes per year, depending on how the fourth line is strategically oriented towards, perhaps consistent with intermediate chemical integration, which brings me to the next slide.
The slide: The next slide shows all the finalists of the strategic review. I mean, the strategic review is now final. The teams were grouped into a consortium, which is very healthy because there is efficiency, and each consortium expressed a preference for producing chemical intermediates in Brazil. For what? It’s pretty simple. If the industry has to partially leave China, it will have to move to a geographic domain linked to a company that is actually able to offer competitive products. I mean, even if we think about China, as we have for the last couple of weeks, it’s the world’s only manufacturer of lithium chemicals, as we all know. So when we think about the source chain with them, we get a lot of data because they’re also interested in producing chemical intermediates that we call Double Zero, which stands for 0 carbon, 0 WasteArray.
They’re making fantastic pictures about waste in China. And the country that delivers the chemical intermediates will have to be a country like Brazil. For what? We have abundant and affordable renewable energy at $0. 02 per kilowatt hour. We have plenty of plant-based fuel at a competitive price. We have a very gigantic domestic market that can obviously digest, that’s the word they use, all the by-products. And those are very important characteristics, because the by-products are used in the cement-based structure industry and in cleaning products and detergents in the domestic industry. And Brazil has both. So Brazil can produce 0 waste, just like China, and we can also produce 0 carbon. This is why we can coexist with what is still a China-centric chemical supply chain by delivering less volume of an incredibly durable product which, as we showed in the slide above, would constitute the biggest problem. Extra down and here, carbon-free lithium hydroxide. chemicals.
So we can enable the advancement of the lithium hydroxide chemical industry globally by delivering chemicals to the chemical point, double zero intermediate, 0 waste, 0 carbon, in Brazil and around the world. Another attractive point in Brazil is that we also had a professional workforce for chemistry. Brazil has never been decommercialized. So we have a fairly large chemical business park in Brazil. And for basic chemicals, the point of specialization is not the type of specialization required to be an alchemist, as we call our Chinese friends. I mean, they are alchemists with crystallizers and capable ones. do it at an incredibly low cost. We would simply be doing intermediate chemistry, which is basic chemistry. And for that we have the human capital of the country.
Now I’m changing tactics and talking about the size, relevance and strategic relevance of Sigma. Let’s move on to stages four and five, this is the next slide. For phases four and five, we have an even greater expansion in the scale of the mineral resource here. That’s what we’ve been saying all along. On page 22, we only have a summary of our size. We have four properties. And we focused our drilling on the intermediate assets called Grota do Cirilo because those assets concentrated the maximum of the old artisanal mines that we were operating when we bought them, when we introduced Sigma in 2012. So that’s enough to make up here. So stages 1, 2, 3, four, and five are all here. And those stages provide us with 130 million tonnes of prospects for Sigma’s mineral resources, which will be shown through fourth3-101.
And as a result, it just provides us with the reserve, let’s put it this way, the scale of resources that would allow us to keep growing, keep growing at scale, to think about what integration we need on the line so that it’s essentially the foundation of our growth, a large-scale allocation for the next big lithium company, because that’s the kind of mineral resource needed for a company that’s planning the next big lithium company. On the right, you can see the map we’re presenting with the announcement of the exploration update for Phase Four. It was just a scouting update. We were just looking to give investors a sense of what’s to come. We will launch a four3-101 with stages four and five, expanding it to more than 50 million tonnes. The next slide comprises the closing remarks.
I think, how can we conclude all this? What does this all mean? What does this mean, everything I’ve said here about pricing our inventory, creating shareholder price and what’s happening in the industry? Well, we haven’t been re-evaluated as a manufacturer yet. All of this reassessment hasn’t happened yet. And the screen makes it evident. There are manufacturers who deliver on a small scale. And proportionally, they get a much more consistent valuation with production than we do, right? And they are consistent with the development, they provide an assessment of production for five years that is much more consistent than the current one. So that’s the work that my husband here at A10, supported by Sigma, until we have completed the strategic review, Matthew DeYoe will come in and lead it. I think there’s a bit of confusion about what Matt does at Sigma.
Well, he joined A10. Es our partner at A10, and he came in to help the principles of A10 ascribed to Sigma, which is [Marcelo] and I and all of us to essentially be the [manufacturing] interface to communicate everything that hopefully, we’ve managed to close that hole. The hole is huge. We necessarily make up one-third of our non-major manufacturing peers. And we plan to close that hole with just the base price. And our prices are very competitive. But in terms of earnings, which we just learned in our first quarter monetary and money generation, this company can be priced at 3 times EBITDA over time, which is a very attractive price proposition, right?The next slide shows why they will become the next big lithium company.
We are already one of the largest manufacturers in the world with 270,000 tons per year. Where we are now, if we take our constant production a month, it’s declining at a 12-fold rate, that’s what we’re getting. It is one of the great lithium companies because with the increase of 760,000 tons of lithium concentrate per year, I mean, we are reaching the club of companies capable of generating the equivalent of 100,000 tons of LCE per year. We have a special product, high purity thick lithium. We have a very low cost and we have the Triple Zero, which is carbon neutral, dry pile, without tailings dam, of which we sell all those by-products, the ultra-fine ones. It is, therefore, a very exclusive competitive position. And then I need to close this call and thank you because you’ve been in us from the beginning.
And the least we can do to all of our investors is what we did. We delivered like clockwork on all fronts and now we have stayed in office. We have just cemented our position as the second manufacturer with the lowest charges in the world. When you do the byproduct calculation of our charges, you get a figure that’s literally above, which is literally the total maintenance charge we’ve posted at DFS, which is a testament to our obsession with operational efficiency. So each and every front tirelessly focuses on consistency. I mean, actually, I need to leave you with that thought. When I was in China, they probably gave me some of the greatest praise there ever was when they said, wow!, you surpass us. You burn the oil at 3 a. m. And I said, well, that’s what wants to happen in the century where Asia leads the art of painting, isn’t it?
So, literally, we work and work just as hard as our competitors. And that’s what we need to leave you with on this earnings call. And I actually need to thank you for sticking with us and trusting us, even in this price environment, where lithium is going into a downward cycle. We are here to stay because we thrive in a down-cycle environment, given that we can produce money and profits no matter what. With that, I move on to the Q&A. And I need to thank you so much for hearing this call.
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