Sociedad Química y Minera de Chile S.A. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Lithium Market Dynamics: Lower lithium prices in Q2 led to revenue decline, but recent market dynamics show price improvement; strong demand growth from EV and BEV, especially in China and Europe; International Lithium division sales guidance updated; Kwinana refinery completed, first product delivered on spec, on budget, on time.
• Iron Segment: Iron is the most profitable segment in Q2 with 57% adjusted gross margin, contributing over 50% to total company gross profit; prices strong, supported by healthy demand and tight supply, expected to continue.
• Fertilizers: Specialty Plant Nutrition business stable with resilient demand in key markets; potassium volumes lower as guided, but prices firm; diversified portfolio positions SQM well to navigate volatile environment.

Segment Performance

• Lithium: Revenues down over 3% year-on-year in Q2 due to lower prices; International Lithium division updated sales guidance to approximately 20,000 metric tons of lithium carbonate equivalent for full 2025 as mine reaches full capacity; Kwinana refinery completed and delivered first product; Salar de Atacama lithium sales volumes almost flat y-o-y, but expected yearly sales volume from Chilean operations to increase by at least 10% vs 2024.
• Iron: Most profitable segment in Q2 with 57% adjusted gross margin, contributing over 50% to total company gross profit; prices strong, supported by healthy demand and tight supply, expected to continue.
• Fertilizers (Specialty Plant Nutrition): Stable, reflecting resilient demand in key markets; potassium volumes lower as guided, but prices firm.

Guidance

• International Lithium: Updated sales guidance for International Lithium division to approximately 20,000 metric tons of lithium carbonate equivalent for full 2025 as mine reaches full capacity; Kwinana refinery ramp-up underway, expected to produce 50,000 metric tons of lithium hydroxide annually with half attributable to SQM.
• Chilean Lithium: Expect yearly sales volume from Chilean operations to increase by at least 10% versus 2024.
• Iron: Expect price strength to continue into coming years.

Risks

• Lithium Market Volatility: Fluctuating lithium prices can impact revenues.
• Refinery Ramp-up Challenges: Potential issues similar to other plants during ramp-up, but SQM is prepared with planning and knowledge.
• Environmental and Regulatory Hurdles: For projects like Salar Futuro and Codelco deal, regulatory and environmental factors could pose challenges.

Question and Answer

Q: On SPN, midterm/long-term goals for SPN, based on volume, EBITDA, or margin per ton?

A: Juan Pablo Bellolio states SPN's midterm and long-term strategy is to keep growing by adding products and services, remaining a solid brand to maintain margins and prices.

Q: On Mt. Holland, volumes in second half of 2025 and Kwinana ramp-up compared to earlier plants?

A: Mark Fones says 20,000 tons LCE sales mostly in second half, evenly distributed between Q3 and Q4; Kwinana refinery ramp-up approached with planning and knowledge, having started construction with detailed engineering.

Q: On iodine, what will break iodine prices, demand destruction, new supply outlook?

A: Pablo Altimiras says new applications growing, SQM investing in capacity expansion; lack of supply from others, but environmental restrictions and planning are bottlenecks for new supply.

Q: On Mt. Holland mine economics, short-term and long-term costs compared to Salar de Atacama?

A: Mark Fones says current production cost not reflective of long-term projections, but profitable now; long-term sodium concentrate production expected to be among top in Western Australia concentrate.

Q: On Salar Futuro implementation, CapEx deployment?

A: Ricardo Ramos says working with Codelco to submit environmental study next year, expect approval beginning 2030, CapEx to start in 2030.

Q: On iodine supply balance and bottlenecks for supply growth?

A: Pablo Altimiras says SQM investing in capacity expansion; other players may have supply in next year, environmental restrictions and planning are bottlenecks.

Q: On Codelco deal timing?

A: Ricardo Ramos says process moving fast, expected to be completed during 2025.

Q: On cost curve of sector, supply under water at current prices?

A: Pablo Hernandez says prices still below balance between supply and demand, some competitors with higher costs than current pricing.

Q: On 2026 CapEx expected?

A: Gerardo Illanes says full review of CapEx plan for next few years to be done during current quarter, maintenance CapEx ~$250M per year.

Q: On Codelco progress and lithium inventory?

A: Ricardo Ramos says Codelco process moving in right direction, resolving in next few weeks; Carlos Diaz says lithium inventory healthy, according to production and sales projections.