Lithium Argentina AG Q4 FY2024 earnings call

• Cauchari-Olaroz exceeded 2024 production targets, producing 25,400 tonnes, ending the year at over 90% capacity.
• Achieved three ISO certifications, reaffirming commitment to excellence and responsible practices.
• Reduced project-level debt from $350 million to $210 million through strategic transactions and favorable FX changes.
• Moved corporate domicile to Switzerland with over 99% shareholder approval for added strategic and financial flexibility.
• Announced a 5,000 tonne per annum DLE demo plant at Cauchari to leverage advanced processing tech.
• Focus on improving product quality and pricing, with realized price discounts improving by over 50% from first sales in 2024.

In 2024, Lithium Argentina's Cauchari-Olaroz segment exceeded production targets, producing 25,400 tonnes, which was above the 20,000-25,000 tonne range. Average cash costs in 2024 were $7,100 per tonne, with Q4 cash costs at $6,600 per tonne. The segment's performance was driven by consistent month-on-month production increases and reaching over 90% capacity in December.

• 2025 production guidance: 30,000-35,000 tonnes, with second half expected higher than first half due to planned maintenance in first half.
• 2025 operating costs expected similar to 2024, sustaining CapEx around $600-$700 per tonne.
• Expect production volumes in 2025 to exceed those in 2024, with long-term cash operating cost estimate of $6,500 based on current performance.

• Challenges in the industry ramping up new chemical plants or expansions.
• Dependence on market price recovery for pricing adjustments.
• Impact of planned maintenance downtime in the first half of 2025 on production volumes.

Q: It looks like you're expecting Cauchari's realized price discount to benchmark covenant prices to reduce by about $1,000 per tonne versus Q4 realizations. How much of this reduction is coming from VAT accounting versus reduced quality penalties?

A: Evan, thanks for the question. Yeah, you're right. So, in Q4, the total adjustment was just over $3,000 a tonne. What we disclosed with this Q4 year-end was that, that total discount will drop to $2,100 per tonne. That's a pricing arrangement that considers both taxes, VAT, logistics, as well as the processing fee. Roughly 50% of that is fixed and 50% of that is variable. So, it is an indication that product quality continues to improve.

Q: Is Cauchari-Olaroz cash flow positive at current lithium prices? And what improvements are possible in this regard, assuming flattish lithium prices in the future?

A: So, at today's prices, we're operating cash flow positive. I think what we've done in this disclosure is an effort to improve transparency. So, we've released operating cash flow, sustaining CapEx. And I think, in Q4, as we got to 85% operating capacity, I think we've demonstrated that unit costs are trending down with volume. So, I think this year, the focus is very much on stabilizing operations. That means improving recoveries as well as producing a higher-quality and more consistent product, which should all improve margins going forward.

Q: Can you just articulate the benefits of this process with future expansion at Cauchari and perhaps other projects in the region relative to your prior design? What's sort of like the primary bullets that you hope to achieve with this DLE tech relative to maybe the incremental cost that it would deliver?

A: Sure. So, I think, firstly, this DLE is being integrated into Stage 1. I think it's important to note that this is one part of the process. So, specifically, it's the solvent extraction modules that will be integrated into our Stage 1, where we already have existing infrastructure on camp, we can tie into the existing pre-concentration ponds, and we can tap into the existing IX and carbonation plant. So, it's really to validate this technology focused on our growth plans. The benefits really from this DLE plant are a lower pond footprint overall, so targeting approximately two-thirds of the footprint that would be used in a conventional expansion, in addition to which the SX plant should validate higher recoveries as compared to conventional. So, it's both a validation process, which is critical for our growth plans, and the major outcomes are lower CapEx intensity versus conventional and slightly improved OpEx.

Q: Can you just give a little bit more detail around the scheduled maintenance? And how much of an impact in production would that bring in the first half? And then what would be the expectation for the second half?

A: Thanks, Corinne. So, what we saw in Q4 as we got to 85% operating capacity and then in December we pushed about 90% operating capacity, we identified certain areas to optimize just in order to kind of sustainably achieve near nameplate capacity. So, we're undertaking those changes in the first half of this year with a planned downtime. So, the expectation is obviously for the second half volumes to be higher than the first.

Q: How much more room over the next 24 months do you have to get those costs maybe below $6,000? Or should we expect $6,000 to $7,000 being kind of your run rate?

A: I think what we demonstrated in Q4 is that, obviously, unit costs are very sensitive to overall volumes. And so, in Q4, at 85% operating capacity, 8,500 tonnes, unit operating cash costs were approximately $6,600. So that's not achieving nameplate capacity. In addition to which, there are a number of priorities this year as we optimize and stabilize production that should lead to lower costs over the next, as you say, 24 months. One of them is reagent consumption. As production stabilizes, I think we'll have a much clear understanding of how we can lower specific consumption across our reagent portfolio. In addition to which, as we transitioned out of the ramp-up last year into steady-state production this year, we have a -- we're in a better position to make important changes in terms of the workforce at camp, which should then drive down costs as well. So, I would say the tech report, which pointed to a $6,500 per ton estimate was really a function of what we could demonstrate to the QPs at the time. I think we're not going to be satisfied at that operating cost. Certainly, Ganfeng and us are very committed to making this one of the, if not the lowest cost producer in Argentina and competitive globally.

Q: In terms of just following up on the Phase 1 optimization that's planned this year, including this first half planned downtime, is this really good to optimizing just the final purification steps? And in specific, is this the [KCL] (ph) plant ramp up to battery-grade lithium? Can you provide any like timelines on when you hope to get to battery grade and/or nameplate?

A: The optimization work that we're doing right now is to be able to sustain near or at nameplate capacity. And so, in Q4, as we kind of guided through last year, the objective was to reach near nameplate capacity, which we did in December at over 90%. The optimization work here is really around reducing overall kind of maintenance costs as well as we've identified certain areas that need to be augmented in order to support near nameplate capacity. In terms of the battery quality objectives, I mean, this is a strong aligned priority for both shareholders to be in a position to sell this product globally, which means a final product being sold globally. So, it's something that we continue to work on. The product quality continues to improve. Part of that is production stability and product stability, ensuring that trace levels of impurities are consistent, which all should deliver improved realized margins for the project and the shareholders.

Q: On timelines, beyond the planned demo plant being completed at the end of this year and commissioning starting then, can you give any insight into the timelines for when we'll see maybe an updated technical report for Phase 2 or more information on the sort of Pastos Grandes plan of operations there?

A: Sure. Yeah. So, on Cauchari Stage 2, we've completed a lot of work internally on the upstream pond capacity and the well fields. The plan now is to work with Ganfeng to integrate this into the new DLE technology. So, we're working with them on this process and expect to have a lot more to disclose later this year. On PPG, we've received the initial development plan from Golder, and we're reviewing this with Ganfeng. Right now, based on the work completed, I think we're very pleased with this draft report, but obviously need to kind of align and work with Ganfeng to finalize this and expect to have this disclosed this year.

Q: My first question would be on your third-party loans, and congrats on the refinancing of the long-term debt there into 2027. I just wanted to get a better understanding of what you expect from the $150 million that is expected to close in Q2 2025. Will that be used to repay the portion that was now recovered or refinanced from the $150 million, or do you have any other plans for that?

A: Thanks for the question. The additional $150 million is being secured largely through Ganfeng at extraordinarily attractive rates. So, the view on that is we're going to use a portion of it to repay existing short-term debt at the project level and the rest we will use as -- to provide us with greater financial flexibility. So, this is a facility that's not going to be immediately drawn, obviously, but it's prudent in this market condition to just add this flexibility, particularly at the interest rates that we've been able to achieve.

Q: From my understanding, so you're looking for better recoveries there. Would you be able to give us any color in terms of the magnitude of recovery potential improvement that you could see from an implementation of that plant, or it's still early works on that front?

A: I think it's too early to say. I mean, the purpose of this DLE demonstration plan is to validate this technology for our growth plans. I would say, it would be in order of magnitude of about 8% to 10% improved recoveries on a universal basis.