Lithium Argentina AG Q2 FY2024 earnings call

Ramp up of Cauchari-Olaroz

• Q2 production reached ~5,600 tons, up 24% from Q1, with monthly records in past three months; operating at ~70% design capacity, aiming for near design capacity.

Pricing and Disclosure

• Working to balance disclosure during ramp-up; will increase disclosure once commercial production is achieved later this year.

Financials

• Had $96 million in cash before the $70 million Pastos Grandes transaction (expected to close soon), proceeds to strengthen balance sheet and delever Exar; secured $80 million bank credit facility in May.

Partnership and Expansion

• Advancing regional development plans and Stage 2 expansion at Cauchari; optimistic about Argentina's RIGI incentive bill supporting long-term growth.

In the second quarter, Lithium Argentina's Cauchari-Olaroz segment saw production volumes reach approximately 5,600 tons of lithium carbonate, a 24% increase from the first quarter. Production is sustained at around 70% of design capacity, with monthly production records in the past three months. The segment is focused on maintaining higher production levels near design capacity. There is no explicit revenue contribution percentage provided, but the emphasis is on the ramp-up and production progress of this key segment.

Production

• On track to achieve 2024 production guidance; focus on maintaining higher production levels near design capacity.

Cash Flow

• Expect to remain operating cash flow positive with costs declining and realized pricing improving as quality improves.

Balance Sheet

• Proceeds from Pastos Grandes transaction to strengthen balance sheet and delever Exar; development work on Stage 2 and regional plans continuing.

• Market conditions remain challenging.
• Foreign exchange fluctuations impacting fair value of derivatives (e.g., Q2 loss of ~$113M related to intercompany loans).
• Uncertainty around timing and impact of regulatory approvals for transactions.

Q: Apurva Kilambi asks about uncommitted offtake from Cauchari-Olaroz and debt refinancing.

A: Sam Pigott responds that they plan to retain uncommitted offtake for flexibility, and they secured an $80 million bank credit facility in May, with plans to use Pastos Grandes proceeds to delever Exar and explore longer-term financing options like local bond offerings in Argentina.

Q: Joel Jackson inquires about lithium pricing, cost optimization, and partner investment views.

A: Sam Pigott states they expect operating cash flow positive in current pricing environment, costs to decline as volumes ramp, and Ganfeng continues to invest through market cycles focusing on lower-cost assets.

Q: David Deckelbaum asks about operating cost targets and Cauchari expansion discussions.

A: Sam Pigott mentions ultimate cost target is to be among lower-cost peers in Argentina, with cost optimization ongoing (e.g., reagents), and development work on Cauchari Stage 2 and regional plans continuing with Ganfeng leading technical collaboration.

Q: Santhosh Seshadri asks about battery grade spec impact on costs and Ganfeng's commitment.

A: Sam Pigott says incremental costs to produce battery grade are immaterial, and Ganfeng is taking most of the product as it ramps up.

Q: Mohamed Sidibe asks about production sales reconciliation and commercial production qualification.

A: Sam Pigott and Alex Shulga explain Ganfeng's entitlement to 80% of first 25,000 tons, production-sales lag during ramp-up, and commercial production defined by sustained high production levels, meeting accounting criteria.

Q: Michael Mcnulty asks about pricing discount evolution and fair value loss on derivatives.

A: Sam Pigott and Alex Shulga discuss the $2,000 discount narrowing as quality improves, and the ~$113M Q2 loss related to intercompany loans due to foreign exchange fluctuations in Argentina.

Q: Shannon Gill asks about KCL plant availability and future pauses.

A: Sam Pigott states no meaningful downtime expected currently, but minor tweaks may be needed as they push for higher production levels, with no expected major pauses like the April one.